Banks Accused Of Profiteering

Evidence has shown that banks and building societies have raised their mortgage rates ahead of an expected cut in the Bank of England base rate on Thursday.

Not only have banks failed to pass on the cut from December, they have actually increased the average mortgage rate. The warning from financial experts is that most mortgage holders will fail to see benefits from further base rate cuts throughout 2008.

Over the past few weeks many lenders, including the biggest building society, Nationwide, plus the Royal Bank of Scotland and the Alliance & Leicester, have increased some of their mortgage rates.

Data from the Bank of England show how mortgage rates have increased. The current interest rate is 5.5%. When it was last at that level in May 2007, the average mortgage rate was 5.66%. After December’s cut to the same level, mortgage rates averaged 5.93%. On an interest-only loan of £150,000 this means a difference in repayment of £33.75 extra a month.

Chairman of the campaign group Independent Banking Advisory Service, Eddie Weatherill, said: “Over the last decade the banks have used interest rate changes to massage their own rates. When the official rate goes up, they are quick to move. When it goes down, they are slow to pass on the cut to their customers. It is profiteering and consumers end up the losers.”

Banks appear to have tried to use the changing interest rate as an excuse to rebuild their profits after they made such mistakes that led to the credit crunch last autumn.

The Bank’s rate was lowered in early December. Since then, ten lenders have increased some of their rates, and 19 have not cut rates on fixed rate mortgages.

The FSA is concerned for the 1.4m people coming off cheap fixed rates this year, who could face an increase of over £200 on their monthly mortgage bill.