Lenders reluctant to reduce fixed rate mortgage costs

Borrowers are continuing to suffer as lenders remain reluctant to reduce the cost of fixed rate mortgages, according to Moneyfacts.co.uk.

This is despite a 30 basis point reduction in the cost of funding on the swap rate market.

The margin between the average two year fixed mortgage of 5.18% and the two year swap rate of 2.04% is now the widest margin on record at 3.14%.

But, during the last month, only a couple of lenders have reduced rates, including Cheltenham and Gloucester and Nationwide. Other lenders such as Barnsley Building Society and Chelsea Building Society have all increased rates.

Michelle Slade, spokesperson for Moneyfacts.co.uk, says margins continue to be increased as lenders look to repair dented balance sheets.

She adds: "Normal rules where lenders pass or decrease rates based on the cost of funding seem to have well and truly gone out of the window. Many lenders seem to be reluctant to pass on any decrease in the current climate."

Slade says savers had been benefiting from the demand by providers to raise money, but this demand seems to have eased.

"The average savings rate stands at 0.84% for variable rate deals and 3.42% for fixed rate deals. Lenders which fund their mortgages through this route are also taking a larger margin than ever before.

"Although tracker rates currently offer much lower rates than fixed rate mortgages, many borrowers are worried about the impact any inevitable increase in base rate will have on their ability to repay their mortgage in future," she adds.