Martin Lewis has said it seems “absolutely outrageous” that the rates savers are sitting on are lagging behind the rates being charged to borrowers. Speaking on ITV ’s Good Morning Britain about the impact of rate hikes on mortgage holders, he said: “None of this is accidental. The fact that mortgage borrowers are paying a lot more is the policy.”
Mr Lewis, who was speaking as Chancellor Jeremy Hunt held a meeting with banks on Friday, told the programme: “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. 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.”
On Thursday this week, the Bank of England hiked the base rate from 4.5% to 5%. 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, Moneyfacts said. Mr Lewis, who spoke to Mr Hunt earlier this week, 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. 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, Mr Lewis 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 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.”
Financial technology firm Twenty7tec said that on Thursday this week mortgage searches by advisers on the platform were 16% higher than on an average Thursday and 7.8% higher than the average previous interest rate decision days in the past two years. Re-mortgage searches by advisers surged by 38.8% compared with a typical Thursday and were 20.7% higher than previous interest rate decision days in the past two years.
Searches for mortgages for house purchase were down by 4.2% compared with the average for a Thursday and down by 7.6% compared with the average previous interest rate decision days in the past two years. James Tucker, founder and CEO of Twenty7tec, said: “Every day this week has been busier than the corresponding day last week.
“That’s due, in part, to the fact that this interest rate rise appears to have been so broadly baked in that the market wasn’t just expecting it, but had been acting ahead of time to secure mortgages at lower rates.”
He added: “The past 24 hours have undoubtedly been a busy one for customers and mortgage advisers alike, as they race to find the most suitable deal.”
