New Study by The Bank’s Quarterly Bulletin Shows Lenders Are Making Excessive Profits from Rates on Loans

Bank of England stops short of criticizing lenders for excessive profits through higher loan interest rates.

Bank of England stops short of criticizing lenders for excessive profits through higher loan interest rates.

The standard base rate has been left standing idle for over a year and a half by the Bank of England’s Monetary Policy Committee at 0.5 per cent. Some banks have been raising rates on loans despite the base rate remaining steady. Lenders have argued that the rise is due to cost increases but the latest study shows they are making excessive profits.

The Bank’s Quarterly Bulletin did a research study and published the findings that showed lenders are actually charging more to borrow money than before the financial crisis. Critics of the banking industry see the results of the study as proof that lenders are taking advantage of those struggling in a hard economy. Economists see the high charges as holding back recovery by denying homes and businesses of credit making it unaffordable when needed. For those that desperately need the credit despite a high rate may start a financial struggle for them that could last decades.  The study stopped short of openly criticizing lenders.

Lord Oakeshott of Seagrove Bay, Liberal Democrat Treasury spokesman, said: “The Bank of England calls it a ‘markup’ – in plain language that’s excessive profiteering.”

The Bank claimed the mark ups are to balance out the losses when low rates were offered before the crisis as well as losses from defaulted loans afterwards, claiming that rebuilding of their profits were essential to the banking industry’s health. It said: “An increase in the markup is consistent with a desire by lenders to improve the net interest margin given the low return on the stock of existing loans and the higher cost of retail deposits.”

The research will also allow an insight into the industry by the newly appointed Banking Commission led by Sir John Vickers. One consideration will be whether or not there is enough competition in the industry to be beneficial to the consumer.

Ray Boulger from mortgage broker John Charcol said: “If there was more competition the banks could not get away with it. If there was enough competition from new banks without the legacy costs the existing banks would have to lower their prices or lose business.”

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