Are big banks short-changing consumers by failing to reduce mortgage costs?

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Big high street banks stand accused of failing to pass on to customers the recent movements in the money markets that should have improved mortgage and savings rates.

Some lenders are offering fixed-rate mortgage deals that are 50%-60% more expensive than those they were selling three months ago – despite the fact the money market “swap rates” that largely determine the pricing of new fixed deals have fallen sharply since the highs which followed Kwasi Kwarteng’s disastrous mini-budget.

Meanwhile, it is claimed others are short-changing savers with “abysmal” interest returns after data showed many had only passed on a tiny proportion of the string of hikes in the Bank of England base rate.

So what is going on in each case and are accusations of profiteering justified?

Mortgages

The price of new fixes had been marching upwards but really shot up after Kwarteng’s now mostly ditched mini-budget unleashed chaos in the financial markets. The average new two-year fix surged from 4.74% on 23 September, the day of the statement, to 6.65% by 20 October.

The two-year swap rates that are one of the main drivers of pricing fixed deals also jumped – from about 3.85% in early September to 5.67% on 29 September – but have since fallen sharply to 4.24% on Thursday. However, average rates on new fixed-rate mortgages have only nudged down a little in the same period: the typical new two-year deal is still priced just above 6%.

Some of Britain’s biggest banks are offering deals that are significantly more expensive than their equivalents at the start of September. According to the data provider Moneyfacts, NatWest was last week offering people looking to remortgage who had a 40% deposit a two-year fix of 6.2% with no product fee. The equivalent at the start of September was priced at 3.79%.

Similarly, Lloyds Bank was last week offering homebuyers seeking the same deal 6.39%, whereas on 1 September the figure was 3.91%, Moneyfacts said.

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Mortgage experts indicated it usually takes between two and five weeks for lenders to reprice their fixed rates after money market movements, but with all the recent volatility they have been slower to act, in part because of concerns about taking on more business than they can manage.

Rachel Springall, a finance expert at Moneyfacts, said: “We are seeing cuts to fixed rates. In the next few weeks I would imagine we would continue that trajectory … It was only last week that the average five-year fixed rate dropped below 6%. That took seven weeks.”

Nick Mendes​ at the mortgage broker John Charcol said lenders were making changes to fixed-rate mortgage pricing “on a gradual basis”, adding that the market was “delicate” and banks were keen to maintain service levels. He predicted “a gradual decrease” in fixed rates from now until early next year.

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Those able to hold on a little longer may be best advised to do so. Moneyfacts said borrowers “may feel they have to be patient for a little while longer yet before they commit to a new fixed mortgage, or even wait until next year to see how the market recovers from the recent interest rate uncertainty”.

Responding to the findings, NatWest said: “We keep our rates under review and last week we lowered a number of rates across our mortgage range.” Lloyds Bank said that while swap rates underpinned fixed-rate mortgage pricing, “they are not the only factor. That’s why there is not always a direct correlation between the timing of their movement and mortgage prices … We’re always looking at rates across our range and the market to make sure we’ve got the right options available for borrowers.”

Savings

Savings rates are on the rise, with some accounts on offer recently paying as much as 5% – but many of the best offers available are from challenger banks and smaller or less well-known providers. Savers with money in some of the UK’s most widely held accounts have so far seen very little benefit from the eight Bank of England hikes since December last year, which have pushed up the base rate from 0.1% to 3% today.

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When it comes to easy access accounts – popular in the cost of living crisis because they allow cash to be withdrawn immediately – many high street banks were this week paying as little as 0.2% interest.

According to Moneyfacts, the Barclays Everyday Saver account was paying 0.01% on 15 December last year, just before the base rate started marching upwards. However, by the start of this week that had only risen to 0.25% on balances under £100,000. On Thursday it increased to 0.5% for all balances.

Similarly, Santander’s Everyday Saver account had a rate of 0.01% last December, and was this week paying 0.2%. This will rise to 0.4% from Friday. Halifax’s Everyday Saver account was paying 0.01% last December, and on Monday was paying 0.45%. This rate rose to 0.55% on Tuesday. A number of similar accounts from other major high street players are paying 0.5% or less.

“Interest on cash savings remains abysmal, and surprise, surprise, it’s the biggest high street banks that are short-changing their customers the most,” said Simon Jones, the chief executive of the financial comparison site InvestingReviews.co.uk. He added that banks were often quick “to ping their borrowers news of an increase in borrowing costs … but they are usually far less anxious about passing on the same hike to their savers.

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“People ask, ‘Why are they behaving this way?’ and the answer is very simple. Because they can. Sadly, when it comes to banking, people don’t shop around as much as they should.”

Springall said: “The base rate was 0.1% at the start of December, so an easy access account would need to pay at least 3% now to have improved by the full bank base rate rise since then.”

She added: “As we have seen time and time again, there is no guarantee savings providers will boost their rates because of a Bank of England rate rise and even if they do it could take a few months to trickle through to customers.”

In a statement, Barclays said it regularly reviewed 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’re providing savers with a choice of products to help them achieve their savings goals.”

Halifax said its “savings product pricing is complex and dynamic”, adding: “This year we increased savings rates in April, June and again in September and, in the rate changes we made today [29 November], we increased the interest rate paid on all our variable rate savings products by up to 1%.”

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