MPs and the Bank of England are putting pressure on banks to support households amid fast-rising mortgage rates but rock-bottom interest rates on bank savings.
A Downing Street meeting is scheduled between Chancellor Jeremy Hunt and the bosses from the UK's high street banks on Friday to urge them to provide more support.
As the Bank of England, which is expected to hike interest rates from the current 4.5% to either 4.75% or 5.0% at tomorrow's meeting, has hiked rates over the past year and a half, mortgage rates have leapt immediately, often in anticipation. The average two-year fixed rate mortgage recently rose to 6%, for example.
Meanwhile, savers have seen rates only inch higher, with some recently as low as 0.1% for some instant access savings accounts, according to recent research from Which?, with 'everyday saver' type accounts at Barclays offering 0.7%, Lloyds 0.9%, NatWest 1.1%, Nationwide 1.25% and HSBC 1.35%.
Hunt will reportedly call for lenders provide some leeway for customers struggling to keep up with mortgage repayments, including for families in arrears.
As for savers, MPs are calling for the Chancellor to intervene there too, with suggestions that a bank windfall tax might work.
Such pressure has worked in the past
Back in March, when savings rates among big banks were almost universally below 1%, the cross-party Treasury Select Committee accused bosses of big banks of “taking advantage” of loyal customers who are reluctant to switch banks to access the much better savings rates available elsewhere.
The big banks responded with increases to the interest rates on their instant access savings accounts but they are still a fraction of the base rate, even though the Financial Conduct Authority has also revealed it has pushed the banks with the most miserly rates to increase them.
New 'consumer duty' rules from the FCA that are due to take effect from the start of August are designed, the watchdog says, to make savers are protected from the “loyalty penalty”.
It will require banks to "justify and explain the rationale for the speed with, and degree to which, they make changes to their various savings rates".
Risks inherent
Citi economist Benjamin Nabarro warned that support from banks for struggling mortgage customers is at odds with the fact that the Bank of England is raising interest rates in order to try and slow the economy and reduce inflation.
“Given the immediate inflationary challenge, we think the optimal policy mix is likely tighter fiscal and more measured monetary. For the second time in 12 months, the government seems at risk of pushing the UK further from such a path.”
He said that the main impact would likely be to protect house prices.
”The risk of mission creep is also significant. Fundamentally, any attenuation of monetary policy transmission risks a worse trade off for monetary policy," he said.
Charlie Bean, a former Bank of England chief economist, also cautioned that it would be a mistake if the protection was not “highly targeted” as otherwise the Bank would have to make even bigger interest rate increases.