Martin Lewis has said it is "absolutely outrageous" that banks are not offering better savings rates despite the base rate increasing. Savings rates are lagging behind the rates being charged to borrowers, according to the money saving expert.
Appearing on ITV's Good Morning Britain, Mr Lewis said that the rates mortgage borrowers are paying are not "accidental" and are "the policy". His statement was made while Chancellor Jeremy Hunt was holding a meeting with banks on Friday.
He added: "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.
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“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.
“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.”
It comes after the Bank of England decided to raise the base rate from 4.5 per cent to 5 per cent this week. Figures released by Moneyfactscompare.co.uk on Friday showed that the average two-year tracker mortgage rate on the market is 5.66 per cent, increasing from an average rate of 5.4 per cent on Thursday. The average two-year fixed residential mortgage rate of 6.19 per cent remains unchanged from Thursday.
Mr Lewis, who spoke to Mr Hunt earlier this week, suggested lenders should be stopped from increasing their profits based on rising interest rates.
"They’re putting borrowing up, but they’re not putting savings up by the same amount," he said. "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.
“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.”
Referring to those who are affected by the rate rises, he said: "You're trying to make them do all the work to take the money out, they're being squeezed extremely tightly". He warned this would have negative effects, adding: "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 added: “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, Mr Lewis 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.”
