Banks manage to triple profits in spite of low interest rates
The Telegraph today published an article that confirmed banks have tripled their profit margin on 5 year fixed-rate mortgages in the past year and therefore have failed to pass onto consumers the lower interest rates they should expect. A year ago a standard borrower with a £100,000 five year fixed rate mortgage would expect to pay £1,500 less than today. The increase on the margin is a similar picture for a 2 year fixed deal.
The failure of the banks to pass on these lower interest rates could seriously hinder the recovery of the economy and Gordon Brown and Alistair Darling are under intense pressure to step in and force the banks to offer competitive rates.
Bank of England official data released yesterday showed the difference between the interest rates that banks charge borrowers and the rates at which the banks borrow is the biggest on record.
Lenders claim they are being pressured by regulators to build up their balance sheet to cover the costs of borrowers who are still defaulting on loans.
The Government had hoped that consumers, who may have recently experienced cheap discounted mortgages, would take up the fixed rate deals to protect themselves from a very probable “payment shock” when interest rates start rising again; but the large upfront fees and the high interest rates attached to the fixed deals do not make them attractive.
There is real concern now that British consumers are being forced to provide higher profits to banks in order to help them compensate for the huge losses they are making elsewhere in the financial sector.
