Five-year fixed-rate mortgage rates have risen above 6 percent, heaping more pain for borrowers and further fueling claims that banks are “profiting” as savers remain stuck with meager returns.
The average rate on the five-year contracts, at 6.01 percent, is now the highest since November, according to figures from the Moneyfacts financial website.
For two-year agreements it reached 6.47 percent.
However, savers who put money in an easily accessible account, in case they need the money for a rainy day, get just 2.45 percent on average, rising to 4.8 percent if the cash is used. keep for a year.
That disparity has fueled criticism of the banks from ministers, prompting the Financial Conduct Authority to summon chief executives for a showdown at the regulator’s headquarters on Thursday.
Five-year fixed-rate mortgage rates have risen above 6 percent, heaping more pain for borrowers and further fueling claims that banks are “profiting” as savers remain stuck with meager returns.
Chancellor Jeremy Hunt (pictured outside 10 Downing Street on Tuesday) said today the FCA had his “full backing to ensure banks pass on better rates as they should.”
Chancellor Jeremy Hunt said today the FCA had his “full backing to ensure banks are passing on better rates as they should be.”
Banks enjoy higher profit margins as the gap between the rates they charge borrowers and the rates they pay savers widens.
Government minister Johnny Mercer told Sky News: “You don’t want to see any speculation like this, particularly when life is really difficult for people right now around interest rates.”
“It doesn’t sound good and I suspect Treasury will review it today.”
Asked if the banks’ behavior amounted to speculation, the Prime Minister’s official spokesman said: “It’s something the regulator is looking into.”
The FCA was already due to report at the end of July on the behavior of banks towards savers.
Parliamentarians on the Treasury committee have been investigating lenders on the issue for months and today, in a new barrage, they accused them of “blatant profit” and failing in their “social duty” to encourage savings.
Mortgage rates haven’t been this high since the market turmoil sparked last fall after Liz Truss’s disastrous mini-budget.
They had started to recede since then, but are now rising again as the Bank of England moves to rein in stubbornly high inflation.
The bank’s benchmark interest rate is now 5 percent and financial markets are betting it will reach 6.25 percent in the coming months.
These expectations are resulting in an increase in swap rates in financial markets, which are used as the basis for pricing mortgages.
In response, banks have been scrambling to pull out their cheapest mortgage deals and raise rates.
It means that as homeowners’ fixed-rate deals, usually agreed to at rates much lower than those currently available, come to an end, they are faced with a financial crisis.
That will affect 800,000 mortgage holders for the rest of this year and 1.6 million in 2024.
They face paying hundreds of pounds a month more as they move towards new mortgage deals.
Myron Jobson, senior personal finance analyst at Interactive Investor, said: ‘The sudden rise in mortgage rates has been unsettling for borrowers, and the latest rally means even more mortgage misery.
‘It’s a punch in the stomach for the around 800,000 households with a fixed-rate mortgage deal set to expire in the second half of this year.
‘Higher mortgage rates mean borrowers end up paying more interest over the life of their loans.
“This translates to higher monthly mortgage payments, which would weigh heavily on homeowners already battling the inflationary beast in other spending areas, like grocery bills.”
Mortgage rates haven’t been this high since the market turmoil that followed last fall’s disastrous Liz Truss mini-budget.
Paul Welch, chief executive of London-based broker LargeMortgageLoans.com, said that with no sign of abating inflation, “rates will keep going up and up.”
“I’m not happy to say that realistically we could see some fixed rates hit 7 percent before the summer is out,” Mr. Welch said.
Last month, Hunt agreed to a new “mortgage charter” with banks, which covers 85 percent of the market and is designed to help those struggling to pay.
It will allow borrowers to switch to interest-only offers for six months or extend the terms of their mortgages to reduce monthly payments.
The banks also agreed to give distressed homeowners at least one year from their first late payment before repossessing their homes.
Sam Richardson, deputy editor of Which? Money, said: “Many mortgage holders will be deeply concerned about five-year average fixed-rate mortgage offers exceeding 6 per cent, so the regulator must ensure that banks meet their responsibilities to help people who may be struggling to keep up with payments
‘The Financial Conduct Authority is right to catch banks amid claims that they are profiting from rising mortgage rates without passing the higher interest rates on to savers.
“Banks have not done well enough in passing interest rate increases on to savers, so the regulator should hold them to high standards and crack down on companies that continue to fall below the standards required to offer fair value products.
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