Banks’ savings and mortgage rate ruse set to net them billions more

Britain’s biggest banks are on track to make billions more from rising interest rates this year – fuelling claims they are profiteering at the expense of savers.

Major lenders stand accused of not extending a series of recent Bank of England rate hikes to savings accounts while ramping up mortgage and other borrowing costs, leading to fatter profits.

City analysts expect NatWest, which was bailed out by the taxpayer during the financial crisis, to make almost £12 billion in net interest income – the difference between what they pay savers and charge borrowers. This is £2 billion more than last year.

Lloyds Banking Group, Britain’s biggest lender and owner of the Halifax brand, is set to scoop almost £14 billion, nearly £1 billion more than a year ago.

Both will report results later this month. The Mail on Sunday and This is Money recently revealed that the six biggest lenders made £44 billion last year in net interest income, which was £8 billion more than the previous year.

But the latest forecasts indicate it will be an even bigger bonanza this year as the cost of borrowing continues to soar, with interest rates now expected at peak at over six per cent.

It comes as ministers are braced for the latest inflation data. Figures this week are expected to show the pace of price rises slowed in June to around 8 per cent.

That would be still way above the Bank’s 2 per cent target – and puts Prime Minister Rishi Sunak’s promise to halve inflation by the end of this year in peril.

The Bank is poised to jack up rates again next month – from their current level of 5 per cent – as it tries to curb persistently high inflation, which is running at 8.7 per cent.

That will heap more misery on homeowners, with nearly a million of them facing an extra £500 a month in repayments as their cheaper fixed-rate deals end, the Bank reckons.

The typical cost of a two-year fixed rate mortgage has soared to 6.8 per cent from 3.8 per cent a year ago, according to financial experts Moneyfacts.

But the interest paid on instant access savings accounts has only increased to 2.6 per cent from 0.5 per cent in that time.

The growing gap has enabled banks to rake in bumper profits. Experts says banks’ profits are highly sensitive to changes in interest rates.

Barclays, for example, makes an extra £170 million for every quarter-point increase in the base rate, according to investment bank JP Morgan.

It has warned banks’ ‘super normal profitability’ raises the risk of the Government imposing a windfall tax.

MPs and regulators are investigating the profiteering claims while encouraging savers to shop around for better rates.

Bank of England governor Andrew Bailey last week urged lenders to pass on interest rate rises to savers, saying they were financially strong enough to compete and offer better deals.

‘The resilience of the banking system is not a constraint on banks managing their net interest margins, and therefore managing the rates they pay to savers and the rates they charge on mortgages,’ he said.

Chancellor of the Exchequer Jeremy Hunt has also backed calls for banks to offer better returns to customers.

But Harriett Baldwin, chairman of the House of Commons’ Treasury select committee, which is examining the lenders’ rates ruse, said: ‘While it is positive to see that some firms are responding to our continued pressure, the easy access rates offered to High Street banks continue to lag, and are significantly lower than the base rate.

‘Banks must now step up and start alerting customers where better products are available.’

Lenders, however, deny charging rip-off rates and say margins of around 3 per cent have only recently recovered to pre-pandemic levels.

There are also signs savings rates have improved after bank and building society bosses were recently called in to see the Financial Conduct Authority, the industry regulator.

But David Postings, chief executive of the UK Finance trade body, was accused of being ‘completely out of touch with reality’ by Labour MP and select committee member Angela Eagle after telling yesterday’s Daily Mail bank margins ‘were not egregious at all’.