Taxpayer-controlled lenders squeeze mortgage market

High street banks that have taken billions of pounds from the taxpayer are charging the highest mortgage rates on the market as the total number of deals available sinks to the lowest on record.

Lloyds Banking Group, which has taken £11.5 billion from the UK Government, requires customers to pay an eye-watering interest rate of 7.89 per cent for a five-year fixed-rate mortgage. The deal is available to borrowers with only a 10 per cent deposit, with a fee of £99.

Buyers who turn to Royal Bank of Scotland, which was rescued and part-nationalised at a cost of £27 billion in taxpayer cash, are charged 7.25 per cent for a similar deal.

Mortgages offered by the two banks are considerably more expensive than those from banks and building societies that have never been forced to go cap in hand to the taxpayer.

Abbey, which is part of the Santander group, charges 7.09 per cent for a five-year fix at 90 per cent loan-to-value. It has a higher fee but is still more than £3,000 cheaper than the deal from Lloyds.

Britannia Building Society, which is merging with Co-operative bank, imposes the same 7.09 per cent interest rate on a 10-year fix.

Mortgage experts say that the high rates were evidence that lenders have no appetite to lend and called into question the success of the Government’s plan to revive the ailing market for home loans.

It came as figures were released showing the number of mortgages available to new borrowers has crashed to an all-time low. Moneysupermarket.com, the comparison site, said that just 2,282 deals were listed yesterday, compared to 27,962 two years ago at the height of the housing boom.

Ray Boulger, of John Charcol, the mortgage broker, said: "When the Government pumped billions of pounds into these part-nationalised lenders last year they agreed to boost mortgage lending, but that is not happening.

“Most lenders are struggling to find the funding to offer more competitive mortgages, either from deposits or from the wholesale markets."

Interest rates of fixed-rated mortgages – the most popular deals -continue to climb despite the fact that the Bank of England base rate remains unchanged at 0.5 per cent.

The cost of the average two-year fix has jumped from 4.66 per cent to 5.08 per cent in the last month, according to Moneyfacts.co.uk, the financial website. Two-year swap-rates, the moneymarkets that lenders use to fund to new fixes, have fallen by a third of a point over the same period.

The margin that lenders make on two-year fixes is more than three-times higher than a year ago.

Similarly, the average five-year fixed-rate is now 6.08 per cent, up by over half a percentage point since June, but wholesale funding costs have fallen from 3.76 per cent to 3.58 per cent.

Darren Cook, of Moneyfacts.co.uk, said: "Two weeks ago, lenders were quick to increase rates in response to higher wholesale prices but with these now falling back I am not sure how many lender’s will pass this saving on to their new customers."

A spokesman for Lloyds Banking Group said: "We offer a wide range of competitive mortgage deals and continue to launch innovative products, such as Lend a Hand, which helps first time buyers take a step on the ladder."

Royal Bank of Scotland said that it is currently offering first-time buyers a five-year fixed-rate deal at 5.99 per cent up to 90 per cent loan-to-value.