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News: 9 out 10 top lenders boost their mortgage margin

Only one of the UK's 10 largest mortgage lenders has not increased its mortgage margin over the Bank of England base rate since July 2000. Following the cut in base rate in August, three top 10 lenders (Woolwich, RBS/NatWest and Nationwide) did not pass the full 0.25% reduction on to their mortgage borrowers.

Bradford & Bingley has actually increased its mortgage margin by 27% since July 2000. Back then the difference between its standard variable mortgage rate of 7.64% and the Bank of England's base rate was 1.64%. The difference between B&B's current SVR of 6.59% and base rate is 2.09%.

Other lenders to boost their margins in such a way include Alliance & Leicester and RBS/NatWest, which have increased their margins by 20%. Double digit margin increases are also shown by others in the top 10. Even Nationwide, which as the largest remaining mutual mortgage lender prides itself on offering a better deal than its bank rivals, raised its margin by 8%.

It has been estimated that the margin increases have resulted in mortgage borrowers of these lenders paying £2.3 billion more than they would have done if margins had simply mirrored movements in base rate.

The name of the lender not to raise margin? HSBC, which has actually bucked the trend by cutting the margin it makes over base rate by 43% - saving its customers £260 million in 'extra' interest.

Carina Kemp, HSBC's head of mortgages, commented, "Within seconds of the last cut in base rate we announced that we would pass the full 0.25% reduction on to our borrowers, reducing our variable rate to 5.50%. This is lower than the SVR of any other top 10 mortgage lender and thanks to our price promise, we can guarantee that our Homebuyer rate will never exceed base rate by more than 1%."

Of course, if you are prepared to shop around and hop from deal to deal you can do better with fixed and discounted rates. The lenders are paying for these deals with increased admin and exit fees as well as relying on the inertia of existing customers paying uncompetitive SVRs.

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