MPs have said they will be keeping a close eye on banks in the coming weeks to see if they are “continuing to squeeze profits from their loyal savings customers”.
Following correspondence with the Financial Conduct Authority, Treasury committee chair Harriet Baldwin said the regulator has confirmed that the UK’s biggest banks are profiting from interest rate rises and that consumers are being harmed as a result.
In a letter sent to the committee on April 12, FCA chief executive Nikhil Rathi outlined how he expects the consumer duty to appropriately deal with banks who have not been fairly adjusting mortgage and saving interest rates.
“We have made clear that firms should be able to justify and explain the rationale for the speed and degree to which they make changes to their various savings rates.
“This includes the extent to which such decisions have been subject to internal scrutiny that is consumer-focused, and how promptly and transparently consumers are told about any changes,” he wrote.
Mortgage interest rates have shot up considerably over the past year, largely driven by the Bank of England’s efforts to cool inflation but also partly in response to the market uncertainty that erupted after Liz Truss’s September “mini” Budget.
However, while borrowers were forced to contend with higher monthly mortgage payments, banks were much slower to pass on higher interest rates to savers.
Back in October, some in the industry told FTAdviser that this was partly a result of poor regulation.
In his letter to MPs, Rathi said the regulator is currently improving its data collection to help deepen its understanding of the savings market.
He also noted that the FCA has been monitoring the speed and extent of firms’ pass-through to their savings product following increases in the base rate, and that it has been in touch with some outlier firms that have made relatively small increases to their variable rate savings products.
However, he noted that the rates firms offer are essentially commercial decisions.
“Pricing helps firms manage demand and some may want to limit their growth in a particular market to help manage operational capacity and/or meet the needs of their own corporate strategy," Rathi wrote.
Rathi also told the committee that as a result of increased mortgage interest rates the number of households whose mortgage payment is over 30 per cent of their total income may increase to 356,000 by June 2024.
Among these, 67,000 households are expected to see their monthly payments rise to 50 per cent or more of their income.
jane.matthews@ft.com