Mortgage war dents Santander

FIERCE competition in the mortgage market has hit profits at Santander UK.

A price war sent the bank’s earnings tumbling to £270m in the first three months of 2019, down 35pc on a year earlier. Its Spanish owner is slashing costs, with £85m of cuts in Britain.

Santander UK boss Nathan Bostock said: ‘Our results reflect the impact of the highly competitive mortgage market, a demanding regulatory change agenda and the uncertain economic environment in the UK.’

Banks are desperately competing to lend to housebuyers and have repeatedly cut the cost of borrowing.

The average five-year fixed rate mortgage charged interest of 2.88pc at the end of March, down from 2.91pc in March 2018, according to research firm Moneyfacts.

This drop is particularly surprising given that the Bank of England has increased its base interest rate from 0.5pc to 0.75pc during this time which would normally push the cost of mortgages up.

Much of the competition is thought to have been driven by so-called ring-fencing rules, which stop banks using savers’ money to fund risky activities such as trading.

As a result, banks have billions of pounds trapped in their retail operations and are fighting to lend this money out to ordinary people so they can get a return on it.