Banks are squeezing households by record amounts with high interest rates on overdrafts, mortgages and credit cards, despite the Bank of England base rate being at an all-time low.
Figures from the Bank of England (BoE) show that the gap between the interest being charged on the average mortgage and the central bank’s base rate of 0.5 per cent are the highest since records began in January 1995.
The average lending rate on overdrafts is 19.5 per cent, also the highest since comparable records started.
Credit card holders are also being hit. The average interest rate being charged on credit cards is 17.3 per cent, the highest for 11 years, the BoE said.
Experts accused banks of profiteering at a time when lending rates should be low. The BoE’s base rate has been at its current low rate for three years.
Lord McFall of Alcluith, the former chairman of the Treasury Select Committee, said that the public are losing trust in the banking sector.
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“This inverse relationship between low interest rates and increasing charges by the financial community makes the public feel at a loss in terms of getting a fair deal,” he said.
The BoE’s figures show that the average interest rate on a Standard Variable Rate (SVR) mortgage was 4.16 per cent in January. The difference between that figure and the base rate is 3.66 per cent. This gap has not been higher in 17 years.
Mortgage levels are set to rise even further.
Halifax, the UK’s largest mortgage lender, said over the weekend that it will raise its SVR from 3.5 per cent to 3.99 per cent in May, affecting an estimated 850,000 borrowers.
The increase means someone with a £150,000 mortgage, repayable over 25 years, will pay £39.99 more each month.
Royal Bank of Scotland also increased its rates.
The record lending rates come as savers receive next to nothing on their bank deposits. According to the BoE, the average interest rate on a deposit account in January was just 0.2 per cent, the lowest since the spring of 2010.
Indebtedness in increasing across the UK.
Figures released yesterday from Credit Action showed that the average household debt in the UK, excluding mortgages, was £7,975 in January, up from £7,951 the previous month.
Including mortgages, the average household debt was £55,988, an increase of around £150 on the previous month.
In total, the average British adult owes banks and other lenders the equivalent of 122 per cent of average yearly earnings.
Research released last week from The Co-operative Bank found that over two-thirds of UK adults have admitted to having debt problems. However those in debt do not believe that they have money worries until they have accumulated an average of £1,247 of debt in overdrafts, credit card bills or other types of loan.
The BBA, which represents British banks, said that increased gap between the base rate and rates that banks charge borrowers does not mean that their profit margins are increasing. It said that the cost at which banks raise funding has increased since the credit crisis.
From the Telegraph
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