Bank Standard Variable Rates

This graph shows how Bank of England base rates have fallen much more sharply than standard variable rates.

Even with base rates kept close to 0%, banks are starting to put up fixed rate mortgages. Generally, if you can take advantage of a fixed rate mortgage now is a good time to get it.

The increased gap between standard variable rates and Bank of England rates reflects.

• Banks wanting to increase profitability after losing money during credit crunch.
• Banks needing to attract savings to improve liquidity ratios.
• Interbank lending rates (3 Month Libor) not falling in line with base rates.
• Decreased competition between banks allowing greater monopoly power.

This graph shows the increased gap between saving rates and lending rates. Basically, this is a banks profit margin, and it has been increasing in recent years.

When Interest Rates Rise

One good thing about the gap between base rates and SVR rates is that when the Bank of England pushes up base rates, commercial banks may not pass on the whole rate rise onto consumers.

For example, when the Bank of England cut base rates by 5%, my lender (Standard Life) cut rates by about 2.25%. Thus if the Bank of England does push up interest rates back to 5% in 2010, I will be (hopefully!) insualated from some of the rise.

Competition and SVRs

In the Long run, I think there is legitimate concern over the growing monopolisation of the Banking industry. With 2 companies now controlling over 50% of the mortgage market share, there is scope for increased prices to consumers