Claims of lenders profiteering from mortgages are overblown

The Bank Rate tumbled from 5% in September 2008 to a record low of 0.5% in March this year, and has remained at this low level to date. Yet mortgage rates have not fallen at the same pace meaning mortgage spreads over the Bank Rate have increased to their highest levels for many years. As a result banks and building societies are being accused of profiteering on mortgages. However, the Bank Rate alone does not determine mortgage rates, and there are numerous other factors to consider when pricing mortgages. Once these are considered, it is evident that lenders are not making as much profit as may first appear.  Indeed, the results of the large banks show levels of profit at their UK retail operations dropped considerably in the first half of 2009, by about 78% year on year.

The retail market

Most lenders rely on retail savings to fund their mortgage lending, and this is where building societies raise the majority of their funds. Profitability in the retail market has reduced over the past year. Instant access accounts are commonly remunerated below the Bank Rate, and as official rates fell towards zero earlier this year the corresponding reductions in deposit rates could not occur at the same pace. Hence, the spread between instant access accounts and the Bank rate has been significantly squeezed to an almost negligible amount. This has reduced profitability for all deposit takers compared to pre credit crunch levels. 

The scarce availability of funds in the wholesale markets has seen increased competition for funds in the retail market. This has pushed up the cost of funding considerably in recent months. Yields on fixed term bonds have been rising steadily with the average quoted bond now paying nearly 3%. This partly reflects a steepening of the yield curve, but the spread over swap rates has also risen considerably in 2009.

 Read the full article

Cash CTF deposits exceed half a billion pounds

Balances in cash CTF accounts had grown to over £505 million by the end of July 2009, up from £428 million at the end of 2008.

In the first seven months of the year, balances held in cash CTFs grew by more than £77 million. This compares to an increase in balances of £72 million in the same period a year earlier.

At the end of July there were 841,000 cash CTF accounts open in the UK compared to 761,000 at the start of the year. Cash CTFs comprise about a quarter of all open CTF accounts.

 View the full statistical table

BSA Annual Lecture

 6.15 for 7.00pm, 13 October 2009
The May Fair Hotel, London, W1

'The New Financial World - A Better Deal for Consumers?'
By Adam Phillips, Chairman of the Financial Services Consumer Panel

Meet senior executives from societies, suppliers to the sector, regulators, government, trade associations, the media and other organisations with an interest in building societies at the BSA Annual Lecture.

The lecture is kindly sponsored by Collins Stewart ISTC, a specialist financial institution dedicated to providing capital and funding solutions to regulated financial institutions in developed economies. www.collins-stewart.com

Request your free ticket now at bsa.org.uk/events

BSA welcomes new Associates

Xchanging and Credit Suisse have joined the BSA as Associates.

 Xchanging provide complex industry specific processing services to the banking and insurance industries as well as procurement, finance and accounting, and human resources services across industries. To find out more about them, visit their website www.xchanging.com

Credit Suisse is a world-leading financial services company, advising clients in all aspects of finance. To find out more about them, visit their website www.credit-suisse.com/uk/en/

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Eukleia Training, the specialist financial services e-learning provider, is delighted to announce the launch of three new courses to support building societies' regulatory training programmes - Mortgage Fraud Awareness, Financial Crime and UK Regulation.

These engaging, interactive online courses are designed to reflect the new era of "regulatory activism" and "credible deterrence" and will be followed next month with the launch of the updated Mortgage Conduct of Business course - in Eukleia's rapidly growing e-learning catalogue.

For further information and free trial demonstrations, please visit www.eukleia-training.com or contact joe.martin@eukleia-training.com / tel 020 7438 9863.