Some people have done quite well regardless of the rising cost of home loans: the bosses of the big UK mortgage lenders.
While borrowers are hit by rising extra payments, banks and building societies are increasing the profit margin they get from customers.
They do this by raising mortgage rates hard and fast, yet offering abysmal savings returns.
In normal times, cut-throat competition for savings and mortgages curbs such greedy impulses. However, the mortgage market is currently so dysfunctional that this equilibrium seems to have been thrown overboard.
At some point, the city expects bank revenues to be affected by a spate of late payments and foreclosures, but there’s no sign of that.
While borrowers are hit by rising extra payments, banks and building societies increase the profit margin they get from customers (file image)
Of course it is essential that banks are financially healthy. But there is a difference between a reasonable level of profit and pure greed.
Two months ago, The Mail on Sunday analyzed the accounts of 43 building societies, which together manage assets in excess of £500bn and power the savings of more than 22 million customers.
While many support local communities and pay savings rates higher than major banks, we found some executive excesses.
For the year ending December 2022, 25 associations paid their bosses a bonus – with Skipton boss getting £1,151,000 and Yorkshire CEO £408,000.
However, not all bank chiefs are guilty. Nationwide and the other mutual building associations are not as bad as the banks and they are trying to ease the pain.
Meanwhile, it also holds that Lloyds, owner of the Halifax, and NatWest received billions of pounds of taxpayer bailout money during the 2008 financial crisis. In fact, we’re still supporting NatWest 15 years later.
But with borrowers in dire straits, it seems there is no such mutual obligation.
Banks and building societies are raising mortgage rates hard and fast, while still offering bottomless savings returns (file image)
Money lenders are not the only or even the worst culprits. Bank of England Governor Andrew Bailey is on trial for his failure to curb inflation. Politicians are also in the picture.
But what can the government do? The truth is his hands are tied.
Many renters would understandably object to a taxpayer-funded homeowner rescue package. Even if Chancellor Jeremy Hunt wanted to go down that road, he wouldn’t be able to afford it 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 scream, but few of us would have any sympathy.
Britain’s biggest lenders rake in £44B as interest rates rise as hard-hit families suffer from rising mortgage costs
By Patrick Tooher, consultant city editor for The Mail On Sunday
Britain’s biggest lenders have raised £44bn as interest rates rise, raising lending rates by more than they pay savers, The Mail on Sunday can reveal.
The amount will no doubt spark accusations that lenders are “profiting” at the expense of hard-hit families suffering from rising mortgage payments – and will lead to more calls for a windfall tax from banks.
Our findings come as the crisis in the mortgage market worsens. The average two-year fixed-rate mortgage deal now stands at 5.98 percent, compared to 5.32 percent a month ago.
However, savings rates offered by banks remain “pathetic” at less than one percent, campaigners say. This gap between interest rates on borrowing and savings means banks are making huge profits.
An analysis by the MoS of the top five banks and Nationwide, the UK’s largest construction company, found they raised an additional £8bn this way last year. This brought 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 has brought in £9.8 billion in net interest income. The boss, Alison Rose (pictured), was paid a £5.2 million pay package.
An analysis by the MoS of the top five banks and Nationwide, the UK’s largest construction company, found they raised an additional £8bn this way last year (file image)
At the same time, they paid their bosses bumper bonuses and paid dividends to shareholders. Lloyds, owner of Halifax and Britain’s largest mortgage lender, earned £13.1bn in net interest income last year, £2bn more than in 2021, while CEO Charlie Nunn took home £3.7m.
NatWest, bailed out at taxpayers’ expense during the 2008 financial crisis, raised £9.8bn in net interest income. The boss, Alison Rose, was paid a £5.2 million pay package.
“Banks have used rate hikes as paydays for shareholders at the expense of their customers for the past 18 months,” said James Daley of Fairer Finance. “Many savings accounts still pay pathetic interest rates of less than one percent at a time when the base interest rate is 4.5 percent.”
He added: “Yet there has been no forbearance in mortgage rates that continue to wreak havoc on families as cheap fixed deals end.”
The prospect of higher borrowing costs means homeowners will face a £2,900 increase in annual repayments when they take out a new mortgage next year, according to the Resolution Foundation think tank.
It calculated that the total pressure would be £15.8 billion through 2026, if market interest rate expectations were realised. This, the think tank said, represents a “standard of living affecting millions of households ahead of the general election.”
Lenders frantically reprice deals. Last week, Nationwide and NatWest both introduced further increases to their mortgage products, while HSBC and Santander temporarily pulled some deals from sale.
MPs urged savers to look for better deals as they examine whether banks have been slow to pass on better rates while rapidly increasing mortgage costs.
Lloyds made £13.1bn in net interest income last year, £2bn more than in 2021, while CEO Charlie Nunn (pictured) took home £3.7m
“It’s a matter of great concern,” said Harriett Baldwin, Tory chairman of the Treasury Select Committee. ‘Banks will only get the message through if customers vote with their feet.’ The base rate, used to set borrowing costs, has skyrocketed from 0.1% to 4.5% as Bank of England Governor Andrew Bailey tries to rein in runaway food and energy price rises .
Mr Bailey has been widely criticized for letting inflation tear by not raising rates sooner. Experts say he’s been catching up since the war in Ukraine sent energy costs soaring. Last week Mr. Bailey admitted it would take “much longer than we expected” to get inflation, currently 8.7 percent, back to the bank’s target of 2 percent.
The Bank of England is expected to approve another hike in key interest rates next week, to 4.75 percent – the 13th hike in a row. Chancellor Jeremy Hunt believes the bank has ‘no alternative’ but to raise interest rates.
UK Finance, representing the banks, argues that savers can earn higher interest rates by tying up their money for longer. “Banks are commercial organizations and therefore try to offer customers the best possible value while making a profit,” said a spokesman. “This allows them to invest in their business and provide shareholders with a return on their investment.”
Nationwide was contacted for comment.
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