The great British mortgage scam

British mortgage lenders have been taking advantage of millions of homeowners for several years by cashing in on the low Bank of England base rate, according to research from independent finance site Fool.co.uk.

The research suggests that the UK’s largest lender has taken advantage of historically low interest rates by bumping up their margins to extremely attractive and near-record levels. Fool.co.uk believes that many lenders have followed the biggest player’s lead. The lenders have secretly cashed in on the low Bank of England base rate in a sly ruse to make record profits for their shareholders.

Fool.co.uk studied figures from the Bank of England and the UK’s biggest mortgage lender Halifax to illustrate what the biggest player has been up to- and where others have followed (Figure 1). By comparing the base rate from the Bank of England and Halifax’s standard variable rate (SVR) for existing mortgage borrowers, the research shows:

1996 to 1999: not too bad

During the housing lull of the mid to late Nineties, Halifax kept its SVR at much lower levels over the Bank of England’s base rate. Between 1996 and 2000, its interest margin over base rate varied from 20% to 23%.
2000 to 2003: getting worse

Between 2000 and 2003, Halifax made the most of the interest-rate cuts which followed 9/11, bumping up its SVR to 1.74 to 1.75 percentage points over base rate. At the same time, its interest margin rocketed to between 29% and 44%.
2004 to 2007: taking the mickey!

Halifax cashed in after the Bank’s base rate dived to a 58-year low in 2003. From 2004 onwards, its SVR has been stuck at two percentage points above the base rate, while its interest margin has been maintained at between 40% and 53%.

David Kuo, Head of Personal Finance at Fool.co.uk said: “The research shows how well mortgage lenders have been doing from the booming housing market and low interest rates since the turn of the millennium. However, where Halifax leads, other major mortgage lenders follow: there is little difference between its SVR margins and those achieved by its main rivals.

“Although the data is just a snapshot of interest rates over the past twelve years, the trend is clear. If we want to avoid getting stung by sly tactics like these, the simple answer is to opt for a home loan which isn’t directly linked to a lender’s SVR, such as a tracker or fixed-rate mortgage.”