Lenders increase mortgage profit margins as market 'rift' widens
Ulster Bank has increased its profit margin on mortgages more than most to 3.39pc
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MORTGAGE lenders have increased their profit margins in the current financial crisis, but bankers denied yesterday that they were making consumers pay for bad banking decisions.
An investigation by the Irish Independent and the Irish Mortgage Corporation shows the average profit margin on standard variable mortgages has gone from 1.5pc in September, before the European Central Bank (ECB) started cutting rates, to 2.3pc now.
Ulster Bank has increased its profit margin on mortgages more than most -- its margin is 3.39pc.
The bank has one of the most expensive standard variable rate mortgages in the market at 5.89pc for someone borrowing 80pc of the value of the home, according to the study.
Back in September, Ulster Bank had a margin over the ECB rate of 2.05pc, at a time when its standard variable rate was even higher at 6.3pc.
Other banks with high margins over the ECB are Ulster's sister bank First Active. It has a margin over the ECB of 2.99pc on its standard variable rate mortgage, up from 1.95pc in September.
Bank of Scotland has a 2.9pc margin, with KBC Homeloans and Irish Nationwide both having a margin of 2.49pc.
These lenders are closely followed by Permanent TSB, which has a margin of 2.44pc, while National Irish Bank has a margin of 2.4pc on its standard variable rate mortgages.
The survey shows that AIB, Bank of Ireland and Halifax are among the most competitive. Both AIB and BoI have a margin of 1.25pc on their variable rates, while Halifax has a margin of 1.9pc.
These three lenders are also competing hard in the first-time buyer market at the moment, with heavily discounted fixed-rate offers.
Standard variable rate mortgages do not have to change when the ECB rate changes; it is up to the lender to move the rate up or down when the ECB moves.
Tracker mortgage rates, on the other hand, have to come down or go up when the ECB rate changes.
The ECB rate came down in October by 0.5pc, by 0.5pc in November and by 0.75pc this month.
Director of the Irish Mortgage Corporation, Frank Conway, said the survey showed that the margin over the ECB rate being charged by lenders varies widely.
"There continues to be a widening rift in Irish banking with some lenders continuing to compete for mortgage business while others continue to sit on the sidelines," Mr Conway added.
Rate
He acknowledged that most lenders were pricing their mortgages on the interbank rate -- three-month Euribor -- but stressed all lenders were subject to the same Euribor rate.
A spokeswoman for Ulster Bank said the ECB rate had not been a reference point for the cost of money for almost a year. Lenders were mainly raising money from other banks and depositors rather than the ECB, she added.
The Irish Banking Federation stressed that the Euribor rate was well ahead of the ECB rate, and the spokesman added that banks with different business models and different business mixes were able to change different mortgage rates.
- Charlie Weston Personal Finance Editor
