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Banks Enjoying Tidy Margin on Tracker Mortgages

Wed, 02 Sep 2009

Financial experts have said that banks could make billions of pounds from consumers taking out tracker mortgages . With lenders offering miserly fixed rate mortgage deals at present given the record low base rate, banks stand to make considerable profits from the widespread return to tracker mortgages, warned John Charcol's senior technical manager, Ray Boulger.

The three month London Inter Bank Offered Rate (LIBOR) fell to a record low of 0.69 per cent last week, whilst swap rates also decreased last month after the Bank of England extended its quantitative easing programme by a further £50 billion. As a result, the cost of funding deals has fallen considerably, enabling banks to charge sizeable margins on tracker home loans . The average interest rate on a tracker mortgage stands at 3.76 per cent currently, 3.07 per cent above the LIBOR. Therefore, a £200,000 loan would yield a margin of £511 a month.

Banks have faced criticism for failing to pass on the Bank of England's interest rate cuts, and the continued margins they stand to earn from a return to tracker mortgages will do little to placate such allegations.
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