The bosses of major mortgage lenders in Britain are reaping the benefits of the rising cost of home loans, while borrowers face higher payments. Banks and building societies are increasing their profit margins by raising mortgage rates while offering low returns on savings. Normally, competition in the mortgage market would prevent such greedy behavior, but the current dysfunction has disrupted this balance. Despite expectations of an increase in arrears and repossessions, banks continue to profit. This discrepancy between fair profit and plain greed must be addressed.
An analysis of 43 building societies conducted by The Mail on Sunday revealed executive excess, with 25 societies paying their bosses bonuses. Some executives received large sums, such as £1,151,000 for the boss of Skipton and £408,000 for the chief executive of Yorkshire. However, not all bank chiefs acted in this way. Nationwide and other mutual building societies are not as bad as banks and try to alleviate some of the pain.
Furthermore, it is worth noting that Lloyds (owner of Halifax) and NatWest received billions of pounds in taxpayer bailout cash during the financial crisis in 2008. However, when borrowers are struggling, there is no reciprocal obligation from the banks. Instead, they continue to raise mortgage rates while offering low savings returns. While lenders are not the sole culprits, with Bank of England Governor Andrew Bailey and politicians also responsible, the government’s options are limited due to financial constraints.
A potential solution could be implementing a windfall tax on bank profits. Though this may be met with resistance from the banks, it would likely garner little sympathy from the public. The actions of Britain’s largest lenders reveal their significant profits, with an extra £8 billion earned through the difference between borrowing and savings rates in the past year. Furthermore, bosses received bumper bonuses and shareholders were rewarded with dividends. Lloyds made £13.1 billion in net interest income last year, while its chief executive took home £3.7 million. NatWest, which was bailed out in 2008, earned £9.8 billion in net interest income, and its boss received a £5.2 million pay packet.
This exploitation of rate rises by banks has resulted in families facing financial strain as they experience higher mortgage costs. Savings rates offered by banks remain below one percent, even as base rates reach 4.5 percent. Families are now dealing with the end of cheap fixed deals and the expectation of higher borrowing costs, resulting in a projected increase in annual repayments and a squeeze on living standards. As a result, MPs are investigating if banks have been slow to pass on better rates to savers while quickly raising mortgage costs. It is crucial for customers to shop around for better deals, and the message must be sent to banks that customers will not tolerate such behavior.
Bank of England Governor Andrew Bailey has faced criticism for his handling of inflation and not raising rates sooner. The increase in energy costs due to the conflict in Ukraine has played a significant role in inflation, which currently stands at 8.7 percent. Bailey admitted that it will take longer than expected to bring inflation back to the Bank’s target of two percent. The Bank of England is expected to approve another base rate increase, and Chancellor Jeremy Hunt believes there is no alternative but to lift rates.
While banks argue that they offer the best possible value to customers while making a profit, the current situation suggests otherwise. It is crucial for banks to take action to address this imbalance and prioritize the financial well-being of their customers.
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