Low Interest Rates

Bank of England base rate is at a historic low of 0.5%. Those with base rate tracker mortgages are delighted; those trapped on fixed rates are not so lucky. (Those with savings are in dispare.)

Why is it then that lenders continue to offer 5-7% mortgage rates and charge huge arrangement fees and restrict their lending to a maximum of 85% loan to value in most cases - effectively keeping 1st time buyers out of the market?

The banks have got themselves into a hell of a mess. They are being slated by everyone, me included, for excessive risk taking. The government has had to sure them up financially and they are all trying to find a way to trade in the future. The government lent them money at 5% to 6% and while the housing market continued to see falling prices; lending on property could realistically be described as higher risk. So to minimise lending risks against failing values they lend a lower percentage of current value. To cover their funding costs they need to lend at 5% plus or they lose money on each loan. To build their reserves up they need to get profit into their current accounts - they do this by charging fees, which generate instant profit.

It does not feel right to us as consumers, but it is right for the long term future of the banks, which is arguably good for all our long term futures.

But now the housing market has started to stabalise property is not so risky. So banks MUST increase their lending...