The whole thing is a mess.
Mortgage lenders despite what people might thing are having a hard time at the moment, if you look back 12 months when lenders were offering say 3.5% mortgages, they were probably either borring that money at 0.5% or paying savings rates of the equivalent. So thats 3% margin.
The cost of money for non-deposit taking lenders has soared, so if your interest rate is 7.5% (as posted just above for example) you may be borrowing that money at 6.5%, so thats one 1% margin.
Mortgage lending is all about margins and balancing, all it always has been. Mortgage lenders work in different ways from non-deposit taking, which will itself borrow all the money it lends, to your old school traditional building society where almost of the money lent out as mortgages is money invested in that bank from its savers. And then a mix in between, typically your big commercial high street banks for example, have savings account but also trade a lot of money.
But it gets worse then narrower margins.
You may have hundreds of millions worth of mortgages lent out on low fixed rates, but you need the money to lend new mortgages, for deposit taking banks one way of encouraging that is to increase savers rates, but you can't raise those too much, or you'll end up paying your savers more then you are getting on your mortgages and you have a negative margin, this will sort itself out over time, but as rate increases have gone up so fast, the effect at the moment is very sharp. In fact that will be the case for many, although new lending is only done on new money (you cannot lend out money you dont have), that will still affect the balance. Added to that the regulators after 2008 have stated that all depoist taking banks must have a certain amount of capital at all times sitting there, just in case there is 2008 v2 so the goverment wont have to spend as much bailing them out, and you cannot lend that out.
Then, even more is how mortgage lenders have to stress everything, in case of future rate rises as part of the regulation. So 12 months ago and prior, during sustained low rates, all mortgage lending was stressed for exactly what is happening now, EG if rate raises will you still be able to pay your mortgage? - which don't get me wrong, is good otherwise we would be even more ****** right now then we are. The problem is, now we are in a period of "stress" we still need to stress the new money, as lets face it, in another 6 months time rates could be 10%. But because its been such a short space of time with the rises, nothing has had a chance to adjust, so whilst it may have fit 6 months ago, it doesn't today.
It will start to adjust and balance out in time, but it'll take a while, a year minimum probably two. Right now smaller lenders are literally folding but its accross the board, even the likes of Barclays/Natwest etc are a taking a hit, obviously they are far more resilient, and I am not saying we are at a 2008 yet, but its still a right mess.
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