Lending rates hit all time high


Record high interest rates on mortgages, credit cards and overdrafts are placing household finances under increased pressure, despite the Bank of England base rate being at an all-time low.

According to figures from the Bank of England (BoE), the gap between the interest being charged on the average mortgage and the central bank’s base rate of 0.5% are the highest since records began in January 1995.

The average lending rates on overdrafts and credit cards have soared to 19.5% for overdrafts and 17.3% for credit cards - the highest since comparable records started.

Industry experts have accused banks of profiteering at a time when lending rates should be low. The BoE’s base rate has been at its current low rate for three years.

The former chairman of the Treasury Select Committee, Lord McFall of Alcluith, said this was a cause for the public are losing trust in the banking sector.  He said;

“This inverse relationship between low interest rates and increasing charges by the financial community makes the public feel at a loss in terms of getting a fair deal,”

The BBA, which represents British banks, said that increased gap between the base rate and rates that banks charge borrowers did not necessarily mean that their profit margins were increasing.  It pointed out that the cost at which banks raise funding had increased since the credit crisis.

The high rates of lending have also affected those with mortgages.  Figures show the average interest rate on a Standard Variable Rate (SVR) mortgage was 4.16% in January, a difference between this figure and the base rate of 3.66% - the highest difference for 17 years.

Two of Britain’s biggest mortgage lenders Royal Bank of Scotland and Halifax recently announced increases in their rates which will squeeze households further.  Halifax said over the weekend that it will raise its SVR from 3.5% to 3.99% in May, which would affect an estimated 850,000 borrowers.  This means an increase of nearly £40 per month for an individual with a £150,000 mortgage repayable over 25 years.

Savers are receiving record low interest on their bank deposits. According to the BoE, the average interest rate on a deposit account in January was just 0.2%, the lowest since the spring of 2010.

Indebtedness is also a growing problem in the UK.  Figures released from Credit Action showed average household debt in the UK (excluding mortgages) reached £7,975 in January 2012 compared to £7,951 the previous month.

Including mortgages, the average household debt increased by £150 from the previous month to £55,988.  In total, the average British adult owes banks and other lenders the equivalent of 122% of average annual income.


  • Date posted:
    09/03/2012
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