High Street banks have not been passing on base rate cuts in full to household borrowers and the interest rate charged on some loans has risen, the article in the Bank of England’s quarterly bulletin found.
The Bank of England cut base rates – the rate at which UK banks can borrow overnight from the central bank – from 5% to 0.5% in response to the 2008-09 financial crisis and recession.
However, interest rates on secured loans to households – which includes mortgages – only fell about 2.5% since mid-2008, to about 3.75% currently.
And the typical interest rate on unsecured loans – such as personal loans and credit card debt – rose during the same period from about 8.5% to nearly 11% currently
The Bank of England was cautious about how to interpret this and offered several possibilities:
- banks charging more profits so they can build up their capital reserves in order to meet stricter new regulatory requirements
- a desire to earn bigger profits on new loans to balance their losses on existing loans
- the fact that banks have not been able to cut deposit rates as much as they would have liked, because they cannot cut the deposit rate below zero
