Lenders cash in on rate changes
THE UK's largest banks and building societies have been accused of exploiting base rate changes to squeeze more money out of mortgage borrowers.
The Bank of England raised base rate from 4.5% to 4.75% today. Savills Private Finance, a mortgage broker, has calculated that the last time the base rate was at 4.75%, in October 2001, the average lender's standard variable rate (SVR) was less than 6.3%.
If they pass on the full quarter-point rise from today's decision, the average rate for Britain‘s 15 biggest lenders would be 6.55%.
The base rate has changed nine times since 2001, bottoming out at 3.5% last summer, before marching higher this year. Each time, most banks and building societies pass on the same change to customers, but some use the opportunity to tweak rates less on the way down and more on the way up.
The track records of Nationwide, Portman and Yorkshire make them the worst offenders. However, Savills said some of these mutuals had competitive deals to begin with. Only two lenders, HSBC and Britannia Building Society, did not take advantage of rate changes.
'I am sure that lenders will pass on the latest 0.25% increase, though our research reveals that if they were to do so, they would be pricing their SVR mortgages at 0.27% higher than they were three years ago when rates were also 4.75%,' said Simon Jones, director at Savills.
'Perhaps lenders should consider foregoing this quarter point rise to bring themselves back in line with previous levels.'
Jones said the increased margin was largely due to the increasing cost of regulation for mortgage lenders. Providers have also argued that they need to pass on larger rises to help savers who have been blighted with low rates in recent years.
The Council of Mortgage Lenders said the comparison 'isn't that straightforward'. 'It also depends on the cost of finding finance,' said a spokesman. 'The circumstance in the market [for buying money] might be different.'
He said the extra costs of regulation would not be significant in pushing up lenders' rates.
The change may also be down to lenders hitting existing customers with higher SVRs to allow them to offer more competitive deals to attract new customers.
A study commissioned by Chancellor Gordon Brown last year found that long-standing borrowers are charged over the odds so that banks and building societies can offer attractive deals to newcomers.
He had asked Prof David Miles, of Imperial College, to examine why 25-year fixed-interest mortgages, popular in the US and on the Continent, have never taken off in Britain.
The report found that as a side-effect of the race to offer cut-price deals on the most popular mortgages - discounted rates and short-term fixed rates - other long-term deals seemed like less good value by comparison.
The group of customers who were persistently overcharged were those paying the standard variable rate, who make up about one in three of all mortgage customers.
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