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Martin Lewis slams ‘profiteering’ mortgage lenders for high SVRs

Mortgage lenders are “profiteering” at the expense of borrowers by imposing high standard variable rates, according to MoneySavingExpert.com founder Martin Lewis.

Speaking in an interview with The Guardian this weekend, Lewis said he had “huge worries” about the mortgage market and urged borrowers to consider remortgaging now to avoid an interest rate hike that could send monthly payments soaring.

Lewis says: “I have huge worries about the mortgage market. My concern – and I’ve raised it with George Osborne – is that mortgages are the most expensive they have ever been. Yes, the Bank of England base rate is 0.5 per cent, but the standard variable rate at lots of lenders is 3, 4 or even 5 per cent above base rate.

“If base rate goes back anywhere near to where it was before the crisis, you could see people on 9 per cent. Partly it’s because [lenders] have new capital requirements. But some of it is plain profiteering.”

Earlier this month, brokers slammed lenders for “cashing in” through rising SVRs and suggested firms are attempting to compensate for falling headline mortgage rates.

Experts predict SVR hikes could eventually end the current remortgage slump as borrowers are pushed to address their financial circumstances before interest rates start to rise.

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Comments

There are 16 comments at the moment, we would love to hear your opinion too.

  1. Martin is, of course correct. Will rates revert once capital requirements are reached? …. don’t hold your breath. We are hag-ridden with regulation to ‘protect’ the consummer. Lenders build the inevitable fines into their business plan but the small intermediary and the consummer are left to the exploitation of the big players. Banks have escaped regulation by simply treating the fines as a business expense and increasing charges to compensate, reference the margin’s to which Martin is referring. Small intermediaries are in their death throes and financial advice will eventually be the preserve of those against whom regulation was at first needed. Buy bank shares.

  2. Martin took his time… SVR’s have been for many lenders too high for years… I could possibly understand (although I may need persuading), if they were giving something back to savers, but as usual the banks never loss do they…

  3. Good grief! Has he been asleep? Why has he just woken up? I have been saying this ever since base rate went to 0.5%.

    Just to put the record straight the relevant comparator is Euribor which is now about 0.329. If the SVR is 3% then the margin is 811%. Or if you want to be kind then 500% above base rate.
    Go back to December 2005. Mortgage rate 5.99%. Base rate 4.5% Euribor 2.49%. So margin on Euribor = (Only!) 140.5% on base rate 33%

    Of course they are ripping borrowers off – how else will they find the money for the fines and misspelling compensation.

    Yet again Mr Lewis shows what a good self-publicist he is. I’ll bet I’m by no means the only IFA who saw this early.

  4. Grey Haired Underwriter 22nd December 2014 at 3:03 pm

    I’m so disappointed that there are still people who think that there is a direct relationship between SVR and BBR. SVR is linked to the actual cost of funds, the cost of offering special products and the loss that lenders make on their Treasury investments. I don’t think I have actually seen a new residential loan at SVR and I can’t think of many of our borrowers who have not been offered a shoulder product from our current range. So stop bleating and try and understand the mathematics of lending.

    Just a little reminder that at least one Building Society no longer exists because it lent money linked to BBR (base rate tracker) and couldn’t afford the cost of those funds thereafter.

  5. Grey Haired Underwriter… while I do appreciate your comment, lenders in the position you comment offer out better rates to new borrowers, while stinging loyal borrowers with inflated rates. That is simply NOT fair and dis-loyal.

    Finally I was not bleating, I was simply making the comment that Martin Lewis has taken so long to pick up on this fact!

    Anyway I thought Underwriters sat in dark rooms without windows…

  6. Grey Haired Underwriter

    Oh so I see – there is no correlation at all! Tell that to the marines. I wonder what an actuary would say? Or an economist?

    Funny isn’t it that when interest rates are low the margin seems to be wide and vice versa. In 1990 base rate was 15%, the mortgage rate was 15.4%

    In November 2008 base rate reduced to 3% with the mortgage rate at 6.49% – do the maths yourself.

    The average margin between base rate and mortgage rate seems to be about 30 -25%

    You’re on a losing wicket trying to tell anyone what good blokes the banks are.

  7. Different Point of View 23rd December 2014 at 9:44 am

    Having gone through a financial crisis due to miss pricing of mortgage rates as noted by Grey Haired Underwriter, I find it amazing that Martin Lewis the self proclaimed people’s champion wishes to bring back the lending practices that caused a number of lenders to seek financial help.

    It that is his view why do we not get the pension industry to start offering Guaranteed Annuity Rates again, that would certainly solve the issue of people’s retirement funding at the cost of wiping out a few more Life Assurance companies in the future.

  8. Martin Lewis’s skills at self publicity have saved me at least £15,000 over the years through the endless stream of tips and advice on his Money Saving Expert website.

    He’s probably been responsible for extracting more from the banks than any number of windfall taxes.

  9. I hope GHA replies to Harry’s comment at 22 December 2014 6:21 pm because what Harry wrote was what I was thinking but hadn’t said.

  10. Grey Haired Underwriter 23rd December 2014 at 12:22 pm

    Hk – I’m disappointed that you think a lender can buy money at 0.50%. It is the relationship between the cost of funds and the SVR that counts and BBR does not in any way relate to the cost of retail funding. In a higher rate environment funds tend to cost on or about BBR but not when it has been suppressed to such an artificially low level. To some extent BBR is now an irrelevance until it starts to reflect market rates for the purchasing of money.

    At Victor M – appreciate the point – perhaps i just work for an enlightened lender! And not only is it dark and windowless but my shackles are only released infrequently.

  11. GHU

    No I didn’t say that a lender can buy money at 0.5% or at any other base rate. What I said is that there seems to be a correlation between base rate and SVR in inverse proportion. The history and the figures certainly point to it.

    Don’t forget that up till recently the banks could (and did) manipulate LIBOR – so what other shenanigans have been going on?

  12. Grey Haired Underwriter… Bah humbugs… lol

  13. @GHU – I still agree with Harry 🙂

  14. Grey Haired Underwriter 23rd December 2014 at 2:34 pm

    Sorry Harry but the relationship between cost of funds and the price of mortgages is all that counts. The margin has to be worked out between those two figures. The fact that BBR and the cost of funds once had a correlation is no longer the case. I accept the premise that BBR & SVR are quite far apart but that gap will normalise when BBR starts to reflect the true cost of funds.

  15. Interesting discussion! I recall that the head of a stockbroking firm was asking why we saw bankers as ‘Masters of the Universe’ as, in any other walk of commerce, being able to make profit by borrowing money at 1% and lend it commerciallly at 8% did not constitute such a title. Any of us, given these circumstances, would be locked up by the regulators if we did not make a profit! The GHU emphasises the margins involved but if RBoS give an inverstment rate of 1% (on a good day), then lend it at 4 or 5%, this does not have one streaching for the hanky. I appreciate that not all banking funding comes from retail investment, but a lot does. Before the crash, Abbey were offering mortgages at .01% below base, to gain market share, so margins are pretty flexible things. When banks can pay billions of pounds in fines, and still make a profit, it does raise questions about their margins

  16. GHU

    I await the day when the BBR gets back to reality. As they say – From your lips to God’s ears!

    For fear to long have the prudent been funding the feckless.

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