Martin Lewis has said it seems "absolutely outrageous" that the rates savers are sitting on are lagging behind the rates being charged to borrowers. The Bank of England unexpectedly pushed up interest rates to 5% on Thursday, the highest rate in almost 15 years, as policymakers and the UK Government come under mounting pressure to control the cost of living crisis.
Speaking on ITV's Good Morning Britain (GMB) on Friday about the impact of rate hikes on mortgage holders, the consumer champion said: "None of this is accidental. The fact that mortgage borrowers are paying a lot more is the policy. Nobody needs to be under any uncertain terms that the idea that mortgage borrowers are being squeezed and their incomes are reducing is not an accidental by-product - it is absolutely deliberately why interest rates go up.”
He continued: “Interest rates are put up to try and take money out of the economy, so you put borrowing rates up so that borrowers have less money, and you want savings rates to go up so that people save more and they don't spend more. That's the theory behind this."
Martin added: “So the fact that mortgage borrowers are being squeezed is an absolutely deliberate thing. What that means is the Chancellor is not going to call for help and more money to people who have mortgages. Because that would, if you're following the theory, be counter-productive."
According to figures released by Moneyfactscompare.co.uk on Friday:
- The average two-year tracker mortgage rate on the market is 5.66%, jumping from an average rate of 5.49% on Thursday.
- The average two-year fixed residential mortgage rate is 6.19%, which is unchanged from Thursday.
- A typical five-year fixed residential mortgage rate on Friday is 5.83%, edging up from 5.82% on Thursday.
- The average easy access savings rate on Friday is 2.35% while the average easy access Isa rate is 2.47%. - both of these average rates are unchanged from Thursday.
Martin spoke to Jeremy Hunt on Wednesday and said he had suggested lenders should be stopped from increasing their profits on the back of interest rates going up.
He said: "They're putting borrowing up, but they're not putting savings up by the same amount. That seems absolutely outrageous to me, because when the banks were struggling in 2007/2008, we, the state, the taxpayer, bailed them out.
"We, the state, the taxpayer, are struggling right now. They should be doing what they can in return, because they're too big to fail and, now, they don't want us to fail. They should be doing what they can in return.
"So to be increasing profits, increasing margins at this point seems absolutely wrong. It's profiteering.”
He added: “If I were the Chancellor, and what I said to the Chancellor obviously is, I think you need to make sure that they put savings rates up at least with the same rate as borrowing.
"Because if you do that, you take money out of the economy and that's another way of helping inflation that's less painful than putting lending up.
"But also they need to put money aside to help with forbearance, because even if the idea is we want to, not me, as a state, we want to squeeze borrowers 'til the pips come out so that they haven't got that much disposable income, then what you don't want is people defaulting or going into arrears or being repossessed."
Asked about a large number of people being on fixed-rate mortgages who will not feel the immediate impacts of the rates rising, Martin said: "That's the real problem with increasing inflation when not many people are on variable rate mortgages. It's a very blunt tool that disproportionately affects a few people."
He said that, very roughly, a third of people rent, a third own outright and a third have mortgages.
He said of those who are hit by rate rises "because you're trying to make them do all the work to take the money out, they're being squeezed extremely tightly.
"It also means because people don't come off fixes for a long time there's a long time lag before interest rates going up have the full effect on consumers anyway."
He also warned: "We should remember the indirect hit on renters, because renters are paying so much more than ever before and it is a very difficult situation to rent."
Adding that he was not an economist, the financial guru said: "It's a blunt tool, I don't know how we're expecting it to work that strongly, apart from the message sent to the markets which is a half a per cent rate rise, that was a slap across the face."
At a meeting on Friday, the Chancellor and lenders representing over 75% of the market have agreed to a “mortgage charter”, providing support for residential mortgage customers.
Among the measures, borrowers will be able to switch to an interest-only mortgage for six months, or extend their mortgage term to reduce their monthly payments and switch back to their original term within the first six months, if they choose to.
Both options can be taken without a new affordability check or it affecting their credit score.
Lenders have also agreed to implementing a 12-month minimum period before repossessing homes. Mr Hunt said measures will start taking effect within the next two weeks.
Who was at the meeting with Mr Hunt?
- Alison Rose, Group CEO, NatWest
- Debbie Crosbie, CEO, Nationwide Building Society
- Matt Hammerstein, CEO, Barclays UK
- Ian Stuart, CEO, HSBC UK
- Mike Regnier, CEO, Santander UK
- Charlie Nunn, Group CEO, Lloyds Banking Group
- David Duffy, CEO, Virgin Money
- Nikhil Rathi, CEO of the Financial Conduct Authority (FCA)
Financial markets have predicted that interest rates will strike a high of 6% by early next year.
Later on Friday, HSBC UK announced plans to boost savings rates and will give further details next week.
Referring to the bank’s savings offering, an HSBC spokesman told the PA news agency: “Following a review, we will be increasing rates shortly and making other changes, and we will be in a position to share the specifics early next week.
“But we fully support the Government calls for customers to contact their bank or building society at the earliest opportunity if they have money worries, as it will not affect their credit score.”
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