Banks ‘use credit crunch to milk borrowers of £3bn’

Daily Mail
23.08.2008
By Simon Duke

Banks were accused of ‘milking’ nearly £3billion extra cash from homeowners and blaming the credit crunch.

High Street lenders have made the money by raising their mortgage rates and fees over the past year, even though interest rate cuts have made it cheaper for some of them to borrow money.

A new study calculates that the country’s five biggest banks - Halifax, HSBC, Barclays, Lloyds TSB and Royal Bank of Scotland - are raking in £2.8billion more from mortgage borrowers compared to last year.

The news is bound to anger homeowners, who have seen budgets coming under massive pressure from rises in food and energy bills  -  and other bank charges.

Figures from the personal finance website Moneyfacts.co.uk  show the average rate on a five-year fixed mortgage have risen by 0.43 per cent to 6.76 per cent since July last year.

However, a key wholesale interest rate used by banks, called the two-year swap rate, fell from 6.29 per cent to 5.66 per cent.

The figures are used in Monday’s Channel 4 Dispatches documentary on the credit crunch called How the Banks Never Lose.

On the basis of these figures, banks can potentially make an extra £2.8billion over the course of a year from mortgage customers.

RBS, Barclays and others have lost tens of billions since the credit crunch erupted last August after buying toxic assets linked to low-income U.S. mortgages.

Over the past year banks have raised their borrowing rates and forced through sizeable rises in mortgage arrangement and credit card fees as they try to shore up their battered finances.

Their sky-high borrowing costs have frozen tens of thousands of first-time buyers out of the property market, putting further pressure on house prices.

Liberal Democrat economics spokesman Vince Cable said: ‘The banks are milking overstretched families to make up for their previous mistakes.

‘They’re trying to have it both ways, squeezing as much as they can out of their customers while running to the government for help.’

Earlier this year Chancellor Alistair Darling threw a £50billion lifeline to the biggest banks by allowing them to swap huge swathes of home loans for iron-clad government bonds. The move was designed to kick-start the property market.

Mr Cable says the Government should hold a wide-ranging probe into the banks’ conduct. He said: ‘The whole system of bank charging has been brought into disrepute.’

RBS has increased profits at its UK arm by nearly ten per cent, to £1.1billion. Some £158million may have come from higher mortgage charges, according to the survey.

Halifax, Britain’s biggest lender, is estimated to have profited by £1.5billion after upping its five-year fixed rate by 0.5 per cent.

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