Firstly, the commercial interest rates have remained much higher than the Bank of England Base Rate. One issue is that if the Bank of England raise interest rates consumers may not see such a large increase on their commercial mortgage.
Commercial Rates and Bank of England Rates
Source of data B of E
Gap Between Bank Saving Rates and Bank Lending RatesThe gap between mortgage rates and saving rates peaked in December 2008 with a gap of 4.48%. There has been a little improvement during 2009.
This increased gap basically makes banking more profitable.
Another issue is that the merger between Lloyds TSB and HBOS has created more monopoly power in the banking sector. This week the big two banks both announced an increase in their fixed rate mortgages
- Mortgage Rate = Monthly interest rate of UK resident banks (excl. Central Bank) and building societies' sterling standard variable rate mortgage to households (in percent)
- Saving Rate = Monthly interest rate of UK resident banks (excl. Central Bank) and building societies' sterling time deposits households