How can the mortgage companies defend their growing profit margins?
Lord Turner's much heralded report last week into the financial services industry was fairly hard-hitting and gave rise to some serious consideration about the future. However, tucked away in the back of the report was a summary of the profit margins afforded to UK tracker mortgages in the current market. Rather perversely a number of tracker mortgage companies have increased their profit margin significantly at a time of reduced spending and reduced demand.
With UK base rates at 0.5% we have seen a significant number of tracker mortgages in the region of 5% or above. This equates to a 4.5% profit margin for many, and does not bode well for the future if, as expected, UK interest rates rise sharply in the medium term. If the mortgage companies were to retain the same profit margins in a rising interest rate environment a return to 5% base rates would see 9% tracker mortgages come into play in the UK.
This really is a sign of how selfish the UK banking industry has become putting profit margin above customer demands and reducing liquidity in the mortgage market while increasing the level of deposits required. The old bank manager of years gone by has been replaced by a robot and many banking customers will not even see their bank managers of today. Oh how the UK banking industry has changed!
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