The big high street banks are accused of failing to pass on to their customers recent movements in the money markets which should have improved mortgage and savings rates.
Some lenders are offering fixed-rate mortgages that are 50-60% more expensive than the ones they were selling three months ago – despite the fact that the money market “swap rates” that largely determine the price of new fixed deals have fallen sharply from the highs following Kwasi Kwarteng’s disastrous mini-budget.
Meanwhile, other savers are claimed to be short with ‘abysmal’ interest yields after data showed many had only passed on a tiny fraction of the series of base rate hikes from the Bank of England.
So what happens in each case and are the charges of profiteering justified?
The price of the new patches had gone up, but it really spiked after Kwarteng’s now-discontinued mini-budget sparked chaos in the financial markets. The new two-year average rate rose from 4.74% on September 23, the day of the declaration, to 6.65% on October 20.
Two-year swap rates, which are a key driver of fixed transaction pricing, also jumped – from around 3.85% in early September to 5.67% on September 29 – but have since fallen sharply. at 4.24% on Thursday. However, average rates for new fixed-rate mortgages have only fallen slightly over the same period: the price of a typical two-year new contract is still slightly above 6%.
Some of Britain’s biggest banks are offering significantly more expensive deals than their counterparts in early September. According to data provider Moneyfacts, NatWest was last week offering people looking to remortgage who had a 40% deposit a 6.2% two-year fix with no product charge. The equivalent in early September was quoted at 3.79%.
Similarly, Lloyds Bank was last week offering homebuyers looking for the same deal 6.39%, while as of September 1 the figure was 3.91%, Moneyfacts said.
Mortgage experts said it usually takes lenders two to five weeks to reprice their fixed rates after money market moves, but with all the recent volatility they’ve been slower to act, in part because fears of taking on more business than they can handle. .
Rachel Springall, finance expert at Moneyfacts, said: “We are seeing reductions in fixed rates. Over the next few weeks, I imagine we will continue on this trajectory… It was only last week that the average five-year fixed rate fell below 6%. It took seven weeks.
Nick Mendes of mortgage broker John Charcol said lenders were making changes to the pricing of fixed rate mortgages ‘on a phased basis’, adding that the market was ‘tricky’ and banks were keen to maintain loan levels. service. He predicted “a gradual decline” in fixed rates by early next year.
Those who are able to hold out a bit longer may be better advised to do so. Moneyfacts said borrowers “may feel they need to be patient a little longer before committing to a new fixed-rate mortgage, or even wait until next year to see how the market recovers from the downturn.” recent interest rate uncertainty”.
Responding to the findings, NatWest said: “We are keeping our rates under review and last week we lowered a number of rates across our mortgage lineup.” Lloyds Bank said that while swap rates underpin the pricing of fixed rate mortgages, “they are not the only factor. That is why there is not always a direct correlation between the timing of their movement and mortgage prices… We are always reviewing our range and market rates to ensure we have the right options available to borrowers.
Savings rates are on the rise, with some accounts on offer recently paying as much as 5% – but many of the best deals available come from challenger banks and smaller or lesser-known providers. Savers with money in some of the UK’s most widely held accounts have so far benefited little from the Bank of England’s eight hikes since last December, which took the base rate from 0 .1% to 3% today.
As for easy access accounts – popular in the cost of living crisis because they allow cash to be withdrawn immediately – many high street banks were paying as little as 0.2% interest this week .
According to Moneyfacts, the Barclays Everyday Saver account was paying 0.01% on December 15 last year, just before the base rate started to rise. However, at the start of this week this had only increased to 0.25% on balances below £100,000. On Thursday, it rose to 0.5% for all sales.
Similarly, Santander’s Everyday Saver account had a rate of 0.01% last December and was paying 0.2% this week. This will drop to 0.4% from Friday. Halifax’s Everyday Saver account was paying 0.01% last December and on Monday it was paying 0.45%. This rate rose to 0.55% on Tuesday. A number of similar accounts from other major high street players pay 0.5% or less.
“Interest in cash savings remains abysmal, and surprise, surprise, it’s the biggest high street banks that are failing their customers the most,” said Simon Jones, chief executive of financial comparison site InvestingReviews. co.uk. He added that banks were often quick “to inform their borrowers of an increase in borrowing costs… but they are generally much less anxious about passing the same increase on to their savers.
“People ask, ‘Why are they behaving like this?’ and the answer is very simple. Because they can. Unfortunately, when it comes to banking, people don’t shop around as much as they should.
Springall said: “The base rate was 0.1% in early December, so an easy access account should be paying at least 3% now to improve on the full rise in the bank’s base rate since then.”
She added: “As we have seen time and time again, there is no guarantee that savings providers will raise rates due to a Bank of England rate hike and even if they do, it will could take a few months to trickle down to customers.”
In a statement, Barclays said it regularly reviews its savings rates and in September launched Rainy Day Saver, an account paying 5%.
Santander said: “We will be increasing the rates on our Everyday Saver, Instant Saver, Isa Saver and Easy Isa accounts to 0.4% from Friday… We frequently review our savings rates to ensure we are offering savers a choice of products to help them reach their savings goals.
Halifax said ‘the pricing of savings products is complex and dynamic’, adding: ‘This year we increased savings rates in April, June and again in September and, in the rate changes we brought today [29 November]we have increased the interest rate paid on all our variable rate savings products to 1%.