Despite the fact that the Bank of England base rate of interest is currently at its lowest level in history, at 0.5 per cent and has been for several months now, banks and building societies are still placing a large premium on fixed rate homeowner loan deals, making them an expensive way to borrow money.

Coupled with this is the fact that swap rates, the rate at which loan companies borrow funds on the wholesale money markets, have become cheaper again, whilst lenders’ fixed rate loan deals have remained at the same rate and in some cases, the interest rate has actually increased. This has led to claims that banks and building societies are profiteering from borrowers who have very little alternative option other than a fixed rate loan at the present time.

The average interest rate charged on a fixed rate homeowner loan is currently 5.18 per cent, yet the cost of wholesale loans to lending institutions has fallen to 2.04 per cent, creating the biggest margin ever recorded. It would appear that lenders are trying to recoup their previous losses of the past couple of years by keeping fixed loan rates unrealistically high and many are cashing in on borrowers who are worried that interest rates will increase dramatically next year if they opt for a variable or tracker rate loan.

Michelle Slade of Moneyfacts.co.uk commented, she said “Normal rules where lenders pass or decrease rates based on the cost of funding seem to have well and truly gone out of the window. Fixed rates are the preferred option for many borrowers and lenders are cashing in on those seeking a new deal. It appears that those looking for a new deal are subsidising the revenue lenders are losing from existing customers on low standard variable rate or tracker deals, some of which are currently paying less than one per cent.”