Chancellor Jeremy Hunt has been warned that banks will have no choice but to hike mortgage costs further if forced to pay higher savings rates.
According to a report in The Telegraph, UK Finance, a trade body, said that lenders will have to protect their margins by increasing mortgage rates.
The news comes as the Chancellor meets with regulators to discuss support for squeezed households, with the Financial Conduct Authority (FCA) to report back in July whether savers are getting a good deal.
Eric Leenders, managing director of personal finance at UK Finance, said in The Telegraph that banks are “acutely aware” of the need to pass on interest rates and have worked hard to be fair.
“If we wanted to pay savers more then we’d have to charge mortgage borrowers more,” he added.
Comments for further support come at a time of widespread criticism of banks, which have been quick to raise interest rates ahead of returns on easy-access accounts.
Santander and Barclays, for example, pay 0.85% interest on savings but charge over 6% for a two-year fixed-rate mortgage.
Leenders believes that banks have their backs against the wall, given more than 80% of the mortgage market is supported by fixed rates, of which half of these are on five-year fixes yet to expire.
He argues that this means that despite an increase in the bank rate, most mortgage holders continue to pay their lenders lower, previously agreed upon amounts.
Because of this imbalance, banks cannot pass on in savings the same amount they charge mortgage holders.