The London Sunday Times this morning tells the story of how Lloyds, bank, which is part-owned by the British government, has become a stock market darling at customers’ expense. Lloyds, 41%-owned by the government, has seen its shares soar 260% since the depths of the global financial crisis and 50% so far this year as the bank returned to profit. An analysis for The Sunday Times shows how this turnround has come at the expense of borrowers with its Cheltenham & Gloucester and Halifax lending arms. The average margin on five-year fixed mortgages at C&G has leapt from 1.09 percentage points in September 2008 to 3.76 today — a 245% increase, said Moneyfacts, the data firm. This would add £5,340 a year in interest to a typical £200,000 loan. Many brokers are recommending five-year fixes to guard against a rise in Bank rate.
The paper says the margin largely reflects the difference between the rate borrowers are charged and the cost to the bank of securing mortgage funding in the wholesale markets, known as swap rates.
Customers who can raise only a small deposit are being hit hardest. For example, for borrowers with a 10% deposit, C&G charges 6.89% a year for a five-year deal, despite a current five-year swap rate of 2.19% — a margin of 4.7 points, said Moneyfacts. Royal Bank of Scotland, 84%-owned by the taxpayer, is also pocketing hefty margins on its average five-year fix. They are up from 1.1 points two years ago to 3.67 now, adding £5,140 a year to a typical loan. Michelle Slade at Moneyfacts said: “Borrowers will be angry that they continue to pay the price for mistakes made by lenders, particularly those that have accepted government funding.”
In Australia the Government did not have to take a shareholding in our banks but it did help them by underwriting their borrowings on international markets.The end result is similar. Record profits at the expense of taxpayers.