How Britain’s biggest banks pocketed extra £3bn from cost of living crisis

Britain’s five largest banks have squeezed an additional £3bn from customers by raising mortgage rates while keeping savings deals at grievously low levels, Money Mail can reveal.

In just three months, the major retail chains have taken in a staggering £16 billion from their so-called ‘net interest margins’ – the gap between what they charge borrowers and what they pay savers.

This compares to just under £13bn for the same three-month period in 2021. The damning numbers are buried in the just-published banking reports for the three months from July to September.

And their earnings are likely to increase further, as the Bank of England is expected to raise key interest rates by 0.75 percentage points to 3 percent tomorrow.

Lenders have rapidly increased mortgage deals to a 14-year high as interest rates rise.

Yet they have passed on almost nothing to loyal savers. The worst offenders continue to pay a paltry 0.2 percent on popular savings accounts, while charging home buyers as much as 6 percent to lock in a mortgage offer.

According to data from the Bank of England, the average interest rate on easily accessible savings accounts is still just 0.4 percent, up from 0.1 percent in January.

Laura Suter, of broker AJ Bell, explains: ‘Banks are very keen to protect their profits at the expense of British households.

“Banks make money from the difference between what they charge to those who lend money and what they give to savers — the bigger the difference, the bigger the profit.”

Britain’s five major banks – Barclays, HSBC, Lloyds, NatWest and Santander – have all widened the gap between what they charge borrowers and pay savers, known as their net interest margin, according to the latest quarterly results released last week. .

By widening this gap, they increase profits. Challenger banks tend to offer much more competitive rates than the big names because they need to encourage customers to switch to them.

Big banks have little incentive to raise interest rates as they already hold trillions of pounds in savings.

Lloyds Banking Group, which includes Halifax and Bank of Scotland, reported a net interest margin of 2.98 percent in the three months to September, up from 2.52 percent in the same period last year. Revenues from this gap rose from £2.85 billion last year to £3.39 billion.

At NatWest, the margin climbed to 2.99 per cent – up from 2.35 per cent in the same period last year – earning £2.64 billion in profits. Barclays has the largest margin at 3.01 percent, making a profit of £1.56 billion.

Santander UK reported a margin of 2.07 per cent for the three months to September, up slightly from 1.91 per cent in 2021, with a net profit of £1.15 billion.

Meanwhile, HSBC, which only reports its global numbers, saw its margin grow to 1.57 percent in the period from 1.19 percent last year and bring in £7.48 billion.

In total, the bank results showed they netted an additional £3.32 billion from the gap between the interest they charged and received from customers between July and September compared to a year ago.

Calls have been made for the government to impose a windfall tax on the profits of banking giants to help close a £40bn gap in UK public finances.

But experts believe Prime Minister Rishi Sunak will fear that such a move could upset the city. Last week, NatWest CEO Alison Rose complained that banks already pay more in taxes than any other industry.

The key interest rate has been raised seven times in the past 12 months to counter rising inflation.

But rates on savings accounts are still lower than they were in the dark days of 2009. In March 2009, the base rate was 0.5 percent, but the best easily accessible savings accounts paid a whopping 6 percent, according to data from analyst Moneyfacts.

Last December, the rates all major banks paid on easily accessible accounts were 0.01 percent. The base rate was 0.1 percent at the time. Since then, it has risen to 2.25 percent.

Still, Santander’s Everyday Saver is only 0.2 percent, while Barclays’ Everyday Saver account offers just 0.25 percent up to £100,000. Someone with £10,000 in savings in an account that pays 0.2 percent makes only £20 a year.

Barclays pays a paltry 0.3 percent on its instant access cash Isa for any amount under £30,000, while Lloyds pays a flat rate of 0.4 percent for its Instant Cash Isa.

By contrast, smaller banks and mortgage banks have increased their rates. Top rates for online accounts include Al Rayan Bank at 2.81 percent, while Aldermore, Hampshire Bank, RCI Bank and Secure Trust also offer 2 percent.

On the high street, Swansea Building Society pays local savers 2 percent and Skipton Building Society pays 1.9 percent.

Laura Suter of AJ Bell says, “Until savers vote with their feet and transfer their money to accounts with better rates, the big brand names don’t have to offer savers more attractive deals.”

Over the past two months, banks have closed and re-advertised thousands of mortgage deals at much higher rates.

Rates have risen from an average of 2 percent a year ago to nearly 6 percent, in some cases refunds have increased by as much as half. The last time mortgage rates exceeded 6 percent was at the start of the financial crash in 2008.

NatWest offered first-time buyer rates of just 1.6 percent last year. But now someone who buys a house at the UK average house price of £296,000 with a 10 per cent down payment for a 25 year term would be charged a 6.54 per cent fee to repair at NatWest for two years.

This has added £676.42 to the monthly repayments, which would now total £1,805.42.

And Lloyds would offer the same buyer 6.41 percent to repair for two years, which costs £1,784 a month with a £999 product fee, while HSBC offers a slightly lower 6.04 percent.

A Santander spokesperson said: ‘We continuously assess our products in light of market conditions and make changes where necessary.’

A NatWest spokesperson added: “We continue to support our customers to build their financial capabilities through savings. This year we see an increase in customers who save.’

Lloyds, Barclays and HSBC declined to comment further.

l.purkess@dailymail.co.uk