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Banks accused of sharp practice
Banks' interest rate policy criticised in research by Yorkshire Building Society |
Figures have been released showing how banks can make millions of pounds from their customers by delaying their responses to changes in interest rates announced by the Bank of England.
Many of the UK's leading financial institutions have been criticised for failing to pass on to their customers recent interest rate cuts by the Bank of England.
Typically, the rate paid to savers is cut promptly - reducing the money they earn on their savings - while the benefits of the same cut are passed on to borrowers only weeks later, if at all.
Converted building society The Woolwich: under fire |
This time lag has enabled many banks to make millions from their customers. This might be good for the banks' shareholders, but with the government now taking an ever closer look at alleged sharp practices by financial institutions, the cost to customers is being called into question.
The figures follow hot on the heels of the Department of Trade and Industry's Mortgage Summit last week, when Stephen Byers promised legislation to ensure a better deal for consumers.
Manipulation of interest rate changes to the banks' own advantage is one of a number of criticisms aimed at the mortgage lenders.
Costly delays
In one example earlier this year, NatWest waited 20 days from cutting its savings rate by 0.46% on 9 February before reducing its mortgage rate. It is estimated the bank made in excess of £3.1m through the delay.
In the same month, Barclays cut its savings rate by 0.5% and waited 17 days before passing on the same cut to borrowers. It is estimated that this made the bank more than £2.7m.
The Woolwich cut its savings rate on 22 February and did not pass on the reduction to borrowers until 1 March - a lag of seven days estimated to have made the bank more than £1.6m.
Alliance & Leicester made a savings rate cut on 1 March and reduced its mortgage rate three days later, netting in the region of £418,500.
The figures were compiled by the Yorkshire Building Society, using data from the banks' annual reports and residential mortgage books.
Mutuality
The Yorkshire points out that, as a mutual organisation which exists to serve its members rather than shareholders, it is committed to passing on rate changes to savers and borrowers at the same time.
It also points out that it dropped its mortgage rate by 0.45% on 1 March but waited 118 days before cutting its savings rate, meaning that far from making a profit from the change, it actually paid an extra £7.7m to savers.
These figures highlight again the arguments in favour of retaining mutual status, which have been aired regularly during the recent round of conversions of building societies into banks.
Often prompted by carpet-baggers seeking a windfall payment, conversions have stripped from the mutual sector most of its biggest players in the mortgage market.
The hefty profits the banks are making suggest that the conversions have done nothing to benefit the consumer, although the entry into the mortgage market of new players such as Egg and Standard Life has helped to increase competition
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04 Nov 99 | The Economy |
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Interest rise worries business |
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Yorkshire Building Society |
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NatWest |
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Barclays |
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The Woolwich |
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Alliance & Leicester |
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