Banks win: savers face fresh cuts – but bor­row­ers pay more

The Daily Telegraph - Your Money - - FRONT PAGE -

As rate rises look more cer­tain, banks are mov­ing to boost prof­its by pass­ing on the in­crease to bor­row­ers first, says Laura Suter

Banks are rais­ing mort­gage rates while con­tin­u­ing to cut rates for savers, Your Money can re­veal, as they seek to cap­i­talise at their cus­tomers’ ex­pense from a wider eco­nomic shift toward higher in­ter­est rates. Anal­y­sis by Your Money of the lat­est Bank of Eng­land data shows that for the first time in re­cent mem­ory the cost of a range of pop­u­lar mort­gage deals – such as those where the rate is fixed over two, five or 10 years – are all now creep­ing up­wards.

This ris­ing cost of bor­row­ing was pre­dicted in these pages in early Novem­ber, when cap­i­tal mar­kets started to re­flect higher bor­row­ing costs be­tween banks in the days fol­low­ing Don­ald Trump’s Amer­i­can pres­i­den­tial elec­tion win.

It is now start­ing to fil­ter through into higher mort­gages costs, with the big­gest rise in rates ap­ply­ing to longer-term fixed mort­gage deals.

Savers, how­ever, are con­tin­u­ing to suf­fer cuts to pay­outs, with av­er­age rates on easy ac­cess ac­counts plung­ing be­low an av­er­age 0.2pc for the first time in his­tory.

Banks are prey­ing on the in­er­tia from con­sumers, who broadly do not switch bank ac­counts to chase bet­ter in­ter­est rates, and it is not likely to get bet­ter.

“On the sav­ings side, when rates start go­ing up, I ex­pect banks to con­tinue to pay zero on de­posits,” said Michael Barakos, a fund man­ager at JP Mor­gan As­set Man­age­ment, who holds bank shares in his port­fo­lios.

“As rates rise banks will con­tinue to pay cus­tomers noth­ing even though they can rein­vest those de­posits at in­creas­ingly higher in­ter­est rates,” he said.

At the same time, banks have been in­creas­ing the mar­gins they have been tak­ing on their mort­gage lend­ing, said Mr Barakos. Be­fore the fi­nan­cial cri­sis banks were lend­ing out money on much smaller mar­gins, but the in­ter­est rate cuts fol­low­ing the cri­sis al­lowed them to in­crease their profit mar­gins.

Bor­row­ers should re­mort­gage swiftly to cap­ture low rates, bro­kers warn.

But the out­look for savers is not en­tirely bleak. While av­er­age rates con­tinue to drop, some smaller, lesser­known banks have be­gun to in­crease pay­outs.

Around 30pc of new sav­ings ac­counts saw a rate rise in Jan­uary, the high­est pro­por­tion for a long time. How­ever, these top rates are com­ing from banks most have never heard of, such as mo­bile-only provider Atom Bank or dig­i­tal bank Masthaven. The high-street banks are not ap­pear­ing on the best buy lists.

These newer banks are less en­cum­bered with lend­ing books, and need to at­tract cus­tomers to grow.

Tom Adams of ad­vice site Sav­ings Cham­pion, said: “High-street banks haven’t had to work for savers’ cash.” In­stead, he said, they rely on their name and branch lo­ca­tions.

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