Some people have been doing rather nicely, regardless of the rising cost of home loans: the bosses of Britain’s big mortgage lenders.
While borrowers are hit with spiralling extra payments, banks and building societies are increasing the profit margin they gouge from customers.
They are doing this by hiking mortgage rates hard and fast, and yet offering rock-bottom savings returns.
In normal times, cut-throat competition for savings and mortgage business keeps such greedy impulses in check. However, the mortgage market is currently so dysfunctional that this balance seems to have been jettisoned.
At some point, the City would expect bank earnings to be hit by a wave of arrears and repossessions, but there is no sign of it.
While borrowers are hit with spiralling extra payments, banks and building societies are increasing the profit margin they gouge from customers (file image)
Of course, it is vital that banks are financially sound. But there is a difference between a fair level of profit and plain greed.
Two months ago, The Mail on Sunday analysed the accounts of 43 building societies, which between them manage assets in excess of £500 billion and look after the savings of more than 22 million customers.
While many support local communities and pay savings rates superior to those offered by high-street banks, we found some executive excess.
For the year ending December 2022, 25 societies paid their bosses a bonus – with the boss of Skipton getting £1,151,000 and the chief executive of Yorkshire given £408,000.
Not all bank chiefs are guilty, though. Nationwide and the other mutual building societies are not as bad as the banks and they do try to soften the pain.
Meanwhile, it also sticks in the craw that Lloyds, which owns the Halifax, and NatWest were given billions of pounds of taxpayers’ bailout cash in the financial crisis of 2008. Indeed, we are still propping up NatWest 15 years later.
But now that borrowers are in dire straits, it seems that no such reciprocal obligation exists.
Banks and building societies are hiking mortgage rates hard and fast, and yet offering rock-bottom savings returns (file image)
Lenders are not the only, or even the worst, culprits. Bank of England Governor Andrew Bailey is in the dock for his failure to curb inflation. Politicians are in the frame, too.
But what can the Government do? The truth is that its hands are tied.
Many renters would understandably object to a taxpayer-funded rescue package for homeowners. Even if Chancellor Jeremy Hunt wanted to go down that route, he couldn’t afford to do so with a national debt of £2.5 trillion.
Windfall taxes are rarely a good idea but, in the circumstances, slapping one on bank profits is a tempting option.
The banks would squeal, but few of us would have any sympathy.
Britain’s biggest lenders rake in £44BILLION as interest rates rise while hard-hit families suffer from rising mortgage costs
ByPatrick Tooher, Consultant City Editor For The Mail On Sunday
Britain’s biggest lenders have raked in £44 billion as interest rates rise, by increasing borrowing rates by more than they pay savers, The Mail on Sunday can reveal.
The sum will undoubtedly lead to accusations that lenders are ‘profiteering’ at the expense of hard-hit families suffering from rising mortgage costs – and will trigger more calls for a windfall tax on banks.
Our findings come as the mortgage market crisis deepens. The average two-year fixed-rate mortgage deal now stands at 5.98 per cent, up from 5.32 per cent a month ago.
However, savings rates offered by banks remain ‘pitiful’ at less than one per cent, campaigners say. This gulf between borrowing and savings rates means banks are making huge profits.
An analysis by the MoS of the five biggest banks and Nationwide, the UK’s largest building society, found they scooped an extra £8 billion this way last year. This took their total net interest income – the difference between what the companies charge borrowers for loans and mortgages and what is paid to savers in interest – to £44 billion.
NatWest bagged £9.8 billion in net interest income. Its boss, Alison Rose (pictured), got a £5.2 million pay packet.
An analysis by the MoS of the five biggest banks and Nationwide, the UK’s largest building society, found they scooped an extra £8 billion this way last year (file image)
At the same time, they paid their bosses bumper bonuses and showered dividends on shareholders. Lloyds, owner of Halifax and Britain’s largest mortgage lender, made £13.1 billion in net interest income last year, up £2 billion from 2021, while its chief executive Charlie Nunn took home £3.7 million.
NatWest, which was bailed out at the taxpayers’ expense during the 2008 financial crisis, bagged £9.8 billion in net interest income. Its boss, Alison Rose, got a £5.2 million pay packet.
‘Banks have used rate rises over the last 18 months as a pay day for shareholders at the expense of their customers,’ said James Daley of consumer finance group Fairer Finance. ‘Many savings accounts are still paying pitiful rates of less than one per cent at a time when base rates are at 4.5 per cent.’
He added: ‘Yet there has been no forbearance in mortgage rates which continue to pile misery on families as cheap fixed deals end.’
The prospect of higher borrowing costs means homeowners face a £2,900 increase in annual repayments when they re-mortgage next year, according to the Resolution Foundation think-tank.
It calculated that the total squeeze until 2026 would be £15.8 billion, if market interest rate expectations were realised. This, said the think-tank, represents a ‘living standards hit to millions of households in the run-up to the general election.’
Lenders are frantically repricing deals. Last week Nationwide and NatWest both introduced further hikes on their mortgage products, while HSBC and Santander temporarily pulled some deals from sale.
MPs urged savers to shop around for better deals as they investigate whether banks have been slow to pass on better rates while quickly raising mortgage costs.
Lloyds made £13.1 billion in net interest income last year, up £2 billion from 2021, while its chief executive Charlie Nunn (pictured) took home £3.7 million
‘It’s a matter of great concern,’ said Harriett Baldwin, Tory chair of the Treasury Select Committee. ‘Banks will only get the message when customers vote with their feet.’ The base rate, which is used to set borrowing costs, has rocketed from 0.1 per cent to 4.5 per cent as Bank of England Governor Andrew Bailey tries to rein in runaway food and energy price rises.
Mr Bailey has been widely criticised for letting inflation rip by not raising rates sooner. Experts say he has been playing catch-up since the war in Ukraine sent energy costs soaring. Last week, Mr Bailey admitted it would take ‘a lot longer than we expected’ to get inflation, currently 8.7 per cent, back to the Bank’s two per cent target.
The Bank of England is expected to sanction another base rate increase next week, to 4.75 per cent – its 13th hike in a row. Chancellor Jeremy Hunt believes the Bank has ‘no alternative’ but to lift rates.
UK Finance, which represents banks, argues that savers can earn higher rates by locking away their money for longer. ‘Banks are commercial organisations and therefore seek to offer the best possible value to customers while also making a profit,’ a spokesman said. ‘This allows them to invest in their business and deliver shareholders a return on their investment.’
Nationwide was contacted for comment.
