The decline in the UK mortgage rate to a seven-year low has failed to revive lending because it is too high to encourage borrowers to refinance when fixed-rate terms lapse, according to Moneyfacts.com.
Banks approved 49,871 mortgages in April, a figure that is 46 percent lower than the monthly average of the previous 15 years, based on data from Bank of England.
While the two-year fixed-rate is the lowest since 2003, borrowers pay one percentage point less on the standard variable rate. This applies when the fixed-rate deal in loans expire.
Bank-lending margins have also widened following the financial crisis, as illustrated by the difference in the rate at which they can raise funds in the money markets, and the rate they charge borrowers.
“It’s in the banks’ interest to get people off SVRs, but to do so they must sacrifice their margins,” said Darren Cook, head of communications at Moneyfacts.com. “That depends on how much repairing they need to do to their balance sheets.”
Mr. Cook said that looser loan terms may also revive lending, and according to property broker Savills Plc, banks need down payments that are equal to more than one year’s earnings for the average first-time homebuyer.
Remortgages dropped to 33 percent of loans granted in Q1 from 52 percent in 2009, said the Financial Services Authority. Home sales in Wales and England are close to their lowest level since January 1995, when the Land Registry began compiling data.