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Is the mortgage sector returning to reality?

At a time when mortgage lending in the UK has been "surprisingly strong" yesterday's announcement by the Skipton Building Society of a rewrite of 60,000 mortgage arrangements has not helped the industry. Overnight tens of thousands of mortgage holders in the UK will see their mortgage rate increase from 3.5% to 4.95% costing the average customer an additional £1,500 a year. Could this move cause more friction with mortgage holders in the UK?

The problem for the UK building society sector is the fact that it depends, more than the UK banking industry, on savings to fund its mortgage services. With UK base rates currently stuck at 0.5%, building societies in the UK have been forced to improve their savings rates to levels which are competitive with the UK banking sector although on the whole are unsustainable going forward. It is the fact that UK banks have more access to money market funds, which are relatively cheaper compared to the cost of savings deposits, which has caused the differential between the building society sector and the traditional UK mortgage sector.

Therefore it is unlikely that UK banks will take a similar route to that taken by the Skipton Building Society although in this unpredictable and volatile market nothing can be ruled out!

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