Banks refusing to lower cost of mortgages despite inter-bank rate falling to record low

By
Sean Poulter
Last updated at 5:43 PM on 22nd September 2009

The amount banks are charging each other to borrow money has plummeted to a record low, creating breathing space to deliver a raft of cheap home loans.Interest rates on these loans are now lower than before the credit crunch that ripped the heart out of the global economy.Banks and building societies have come under fire for rationing the number of mortgages they are prepared to offer and keeping the price artificially high.They have argued this approach to home loans has been necessary
because the interbank lending rate, known as the LIBOR, has remained
high during the crunch.However, this excuse has now been
swept away with figures showing that banks are now once more able to
borrow significant sums of money on cheap terms.
New hope: Banks are charging each other record low fees to borrow money, creating breathing space to deliver a raft of cheap home loansThe three month LIBOR rate, the interest rate charged on a loan for a three month duration now stands at just 0.58 per cent, which is only fractionally above the Bank of England base rate of 0.5 per cent.The LIBOR rate is normally seen as the benchmark against which banks and building societies set their standard variable rate (SVR) for mortgages.Given that, typically, the big lenders currently have an SVR of 3.5 per cent, this points to a record high profit margin for lenders of approaching 3 per cent.Industry analysts say there is a very real chance the LIBOR figure will fall below 0.5 per cent in the coming months.In normal circumstances, banks would use this cheap cash to deliver lower rates on mortgages, credit cards and other forms of consumer debt.However, the evidence suggests that they are keeping the cost of borrowing artificially high in order to boost their profit margins at the expense of families, businesses and the wider economy.Mortgage expert at the personal finance website, Moneysupermarket.com, Hannah-Mercedes Skenfield, said the covergence of the LIBOR rate and the base rate should be positive news.’Theoretically consumers should reap the benefits of reduced mortgage rates,’ she said.’However, there is still no evidence of rate cuts being fed through to the consumer. ‘Banks can no longer hide behind higher Libor rates as an excuse for keeping mortgage rates artificially high, but I fear consumers will still be forced to pay through the nose for credit of any kind.’There has been some evidence that rates charged on new mortgages is coming down. For example, HSBC recently unveiled a tracker deal charging 1.99 per cent.However, the best deals are restricted to people with a deposit of more than 30 per cent while they are often accompanied by large fees.Ray Boulger of brokers John Charcol said the falling LIBOR rate should be good news for consumers. However, he sadi the banks are continuing to take huge profit margins on their home loans.

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