Banks are nothing if not consistent. They never miss a chance to fleece you. They impoverished a generation of borrowers by selling them 100%-plus mortgages and six-times-salary deals. Next they loaded up on taxpayers’ money courtesy of government rescue schemes. Now they are busy “rebuilding their balance sheets”. What does that mean? It means increasing their profit margins – so if you were hoping to see some benefit from the Bank of England’s big interest-rate cut, you can think again.
Take mortgages. The 1.5% cut resulted in some headline-grabbing deals – Abbey offers a two-year fixed-rate at 4.99% if you have a 25% deposit, for example. But Bank of England figures show that average fixed rates for all deals lasting five and ten years rose in October, even as the base rate fell. And there’s little pre-Christmas cheer in the pipeline for those on tracker mortgages. Abbey, for example, charges over 2% above the base rate and, as Myra Butterworth points out in The Daily Telegraph, LloydsTSB has actually increased its margin on a similar product to 2.09% above the base rate – prior to the cut it was only 1.09%.
As for savers, “banks and building societies have sneakily cut current-account rates”, says Kathryn Cooper in The Times, by up to 0.99%, according to Uswitch.com. “Providers were hoping that these rate reductions would slip unnoticed under the radar.” Even the Government’s National Savings and Investment Bank is at it, cutting Direct ISA rates to 3.3% from 4.8%. There are a few decent deals left, but hurry – check out Moneyfacts.co.uk for the best before they disappear.
For anyone still using their credit cards, the picture is even darker. Data analysts Defaqto report that the average interest rate charged on credit cards has risen to 17.6% from 16.8% in the past year despite, as The Guardian’s Patrick Collinson notes, “the Bank of England’s base rate almost halving from 5.75% to 3% over the same period”. The banks claim they are reacting to the financial crisis by sensibly limiting credit. But one has to wonder why US card firms can charge interest at between 9% and 11%, rather than 17.6% – a much wider gap than the “two-point difference between the two countries’ base lending rates”.
Even Gordon Brown is promising to make “credit cards the next battle ground in the financial crisis”. But given banks are barely passing on rate cuts to mortgagees, this is just another battle the Government won’t win. And watch out for store cards, they’re “a complete rip-off” in borrowing terms, says Sean Gardner on Moneyexpert.com. And they’ve got worse, says The Independent’s Andrew Grice: the average annual percentage rate charged by shops on their in-house cards has risen by 1% to 25%. It’s yet another way for banks, who stand behind these card schemes, to rebuild those balance sheets by raiding ours.