CML Defends a Hike in UK Mortgage Cost

Despite the fact that the Monetary Policy Committee of the Bank of England kept the base rate at the level of 0.5% last week, 2 major UK lenders – Royal Bank of Scotland and Nationwide – increased their interest rates on mortgage deals.

The price of mortgages at RBS, which is 70%-owned by UK taxpayers, increased by 0.7% as the interest rates on some of the bank’s 5-year fixed mortgage offers grew from 5.99% to 6.69%.
Meanwhile, UK’s largest building society – Nationwide – increased the cost of its remortgage deals by 0.2%.
Mortgage brokers say they are shocked to see British banks profiteering at the expense of borrowers especially as the base rate has stayed at the same low level for 6 months already. Brokers predict that if the banks do not change their conduct, an average mortgage rate in the UK might soon reach 10%.
Interestingly, the report published by the Council of Mortgage Lenders on Thursday, September 10th, defends the banks’ actions by saying that the mortgage interest rates they set are determined by a mixture of factors rather than by the base rate alone.
As such, Mr. Michael Coogan, director general at the Council of Mortgage Lenders, claimed that it is absolutely inappropriate to judge the mortgage interest rates on the basis of only one or two factors such as the base rate, the Libor, etc. and to perceive the difference between them as bank’s pure profit.
Rather, according to Mr. Coogan, analysts have to take a wide range of factors, from cost of funds to loan’s inherent risks, into consideration when commenting on the mortgage interest rates set by banks.
He added that the nature of relationships between mortgage and benchmark rates changed since the beginning of the credit crunch as banks face more pressures than ever before. Mr. Coogan is determined that banks are doing their best trying to meet borrowers’ demand, however, they still need to price their own business adequately in an environment of cautious funding markets.