Lowest-ever home loan rates are still a rip-off

Homeowners are still being overcharged on mortgages, though loan rates have dropped to their lowest since the mid-Fifties. The Consumers' Association says we could be paying an average of 0.3 per cent less on loans if lenders had matched all bank base rate cuts made in the past three years.

For borrowers with the Halifax, this would mean a rate of 4.7 per cent, which would see payments on a £100,000 25-year repayment mortgage fall by more than £17 a month to £567.

Mick McAteer of the Consumers' Association calculated the difference between the bank base rate and average bank and building society mortgage rates. Lenders draw their profits from the margin they make on loans over the cost of funds. Over the past three years, since interest rates peaked at 7.5 per cent in late 1998, the margin has increased from 1.29 per cent to 1.55.

In recent months as the base rate fell to 4 per cent, many lenders passed on the full cut and the margin declined. But it has not fallen enough to make up for the previous two years when the full cut was not passed on.

Michael Coogan, director-general of the Council of Mortgage Lenders, said: 'It is a market with lots of lenders with different strategies. Customers must look after their own interests. I don't think it is the case that margins are widening.'