Why base rate increases are a boon for banks, but not for you

Your mortgage has gone up, but your savings rate hasn't. Lenders aren't playing fair, says James Daley
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The Independent Online

Britain's biggest banks and building societies have used the Bank of England's base-rate increase last month in order to increase their own profits, analysts warn. Many have failed to pass on the full benefit of the 0.25 per cent increase to savers, while unashamedly hiking the cost of their mortgages.

Kent Reliance Building Society, for example, increased the standard variable rate (SVR) on its mortgages by 0.35 per cent just days after last month's increase. Yet rates on some of its savings accounts didn't rise at all. It is far from alone.

Nationwide Building Society, Britain's biggest mortgage lender, has increased savings rates by less than the increase imposed on mortgage borrowers. The latter will now pay 0.35 per cent more, while savers earn only 0.25 per cent extra.

Susan Hannums, a savings manager at the independent financial adviser AWD Chase de Vere, says providers use lots of tricks to benefit from changes in the base rate - and do everything they can to disguise the bad news.

By the middle of last week, almost four weeks since base rates went up, many of the larger providers had still not announced any changes at all to their savings rates. But many of the same banks hiked their mortgage rates immediately after the Bank of England's announcement.

"It's almost guaranteed that if they don't want to say what they're doing, then they're going be giving their customers a bad deal," says Hannums. "It's the same every time: so many of the largest providers wait until the very last minute in the hope that they can slip through their changes without getting noticed."

Melanie Bien, of the mortgage broker Savills Private Finance, points out that SVRs on mortgages from Intelligent Finance, the Newcastle Building Society and the Woolwich are now higher than they were when base rates were last at 4.75 per cent a year ago.

Even those banks and building societies that seem to be looking after their customers by passing on the full benefit of the rate rise to savers are often not being as generous as they first appear to be. Alliance & Leicester, for example, was one of the first out of the blocks at the start of August, boasting that it was increasing the rates on its savings accounts by the full 0.25 per cent. But it failed to mention that it had reduced the rates on some accounts only three days earlier, leaving their customers only marginally better off.

"Customers will respect those banks and building societies that are upfront and honest," says Hannums. "But the rest of them try desperately to avoid getting any bad press by holding out as long as possible."

Banks and building societies usually announce how mortgage rates will change promptly after a base-rate increase or decrease, and then amend savings rates by the end of the month. Yet by Thursday evening, the final day of August, many providers had failed to put up their savings rates.

Mark Hemingway, of Halifax Bank, says that, as the country's largest savings institution, it has to balance the interests of both sets of customers. Any change in its savings rates can have an enormous effect on inflows and outflows from its accounts, so the bank prefers to wait until it has seen what its competitors are up to before deciding on its new pricing strategy.

Graham Leftwich, head of corporate communications at Britannia, also rejects the idea that providers are engaged in a game of cloak and dagger. "We don't sneak anything through," he says.

"We write to all our customers to tell them exactly what's going to happen. But there are all sorts of things that affect savings and mortgage rates, and the base rate is only one of those. If people want a base-rate guarantee, then they can have that with our base-rate tracker account. But what happens to rates on the rest of our accounts is determined largely by what's going on in the rest of the market."

Andrew Hagger, of the personal finance data publishers Moneyfacts, says savings and mortgage customers should get in the habit of regularly reviewing the deal they are on and should be extra vigilant in the weeks after a base-rate change.

"It's good to get in the habit of regularly checking your savings rate and your mortgage deal, too, if you've got a variable-rate package," he says. "The chances are that your bank or building society won't be shouting about it if the changes are not good news for you. On a mortgage, being signed up to the wrong deal can cost you hundreds of pounds a month. We're not talking about pennies here."

Websites such as moneysupermarket.com and moneyfacts.co.uk can help you compare the best rates available.

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