Banks a ‘law unto themselves’ as mortgages rise and savings rates drop
Bank of England
Banks are raising mortgage rates while cutting deals for savers, despite a months-long freeze in central interest rates.
A number of lenders have increased their mortgage rates in recent weeks, including Skipton Building Society, Leeds Building Society, Virgin and HSBC, with average mortgage deals rising to close to 6pc, having previously dropped.
At the same time, top savings deals have dropped by close to a percentage point, despite central interest rates being frozen by the Bank of England since August of last year.
Since November last year, the average easy access savings rate has fallen from 3.19pc to 3.11pc, whereas the average rate on a notice account has dropped to 4.27pc from 4.31pc.
The market peaked with National Savings & Investment’s 6.2pc offering last summer, but top rates have since dropped to 5.25pc for a one-year fix, and 4.50pc for a four-year bond.
Savers who stuck with the big banks last year would have lost out on £318 in interest payments compared with putting their money in the best performing accounts, according to Telegraph analysis.
Meanwhile some 4,200 mortgage holders a day between now and November face a rise in their monthly bills of £240 a month on average as they remortgage on to higher rates, analysis by the Liberal Democrats suggests.
It comes as the Bank of England opted to hold interest rates again on Thursday, with markets now betting a cut to come in June.
Sarah Coles, of broker Hargreaves Lansdown, accused banks of being a “law unto themselves” and cashing in on saver inertia.
She said: “Most of their rates tend to be way below the market leaders. They don’t need to compete so hard, because savings cash is so sticky, so huge numbers of savers won’t move, even when rates are disappointing.
“It means they don’t follow the Bank of England’s rises swiftly or wholeheartedly.”
Rachel Springall, of financial analysts Moneyfacts, said “borrowers may be disappointed to see fixed mortgage rates are on the rise” as savings deals fall.
Banks have repeatedly come under fire for increasing borrowing costs faster than improving deals for savers.
Following rebukes from the Financial Conduct Authority and Chancellor last year, the bosses of Santander, Barclays, Lloyds Banking Group and NatWest were questioned by the Treasury Select Committee in March about how their rates were decided.
In letters responding to the chairman of the committee, Harriet Baldwin, the banks said that relying on the Bank Rate to determine how much they would pay savers did “not necessarily reflect the full range of retail banking dynamics”.
Lloyds said that the cost of administering small accounts exceeded any income earned by the bank.
The Bank Rate, set by the Bank of England’s Monetary Policy Committee (MPC), which met this morning, has been set at 5.25pc since last August.
This freeze followed 14 consecutive rises from December 2021, as the central bank scrambled to try and get a hold of inflation.
Anna Bowes, of Savings Champion, said she was waiting with “baited breath” to see what would happen to rates when the Bank Rate drops
She said: “Cutting the Bank Rate will be the telling test of whether banks are being fair to all of their customers.”
A spokesman for UK Finance, the banking trade body, said: “Saving and mortgage rates aren’t directly linked and therefore will move at different times and by different amounts.
“Savings rates increased significantly last year and there are a lot of good products available in a competitive market. We always recommend people shop around for the product and interest rate that is suited to their needs. If you can put your money away for a period of time or make a regular saving commitment you can generally get a higher rate, but there are also good rates on instant access accounts.
“The mortgage market is very competitive and mortgage rates are driven by a number of factors, including changes in lenders’ funding costs. The majority of mortgages in the UK are currently fixed rates.”
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