British banks still cash in on customers

[TriWooOx]

Quote:British banks have been accused of taking advantage of customers by making £500 million extra in the past year from the UK despite the worldwide credit crisis.

While banks have suffered billions of pounds of losses in their global businesses, they have been able to claw back money by charging British customers more on financial products, such as credit cards and mortgages.

Latest figures show that five of the world's biggest names in retail banking made nearly £500 million more in profits for the first half of 2008 than the first half of 2007, while raising the rates on their products.

The findings are a bitter pill to swallow for millions of families who are struggling to cope with the full impact of the credit crisis. While banks look to reverse their global losses by increasing their product rates, more than 100 home owners a day are being evicted as they fail to keep up with their payments.

The figures from the banks' half-year reports show that HSBC, Lloyds TSB, Royal Bank of Scotland, Barclays and HBOS made combined profits of £4.294 billion in 2008, compared to £3.808 billion in 2007.

HSBC's UK profits soared by 85 per cent from £331million in the first half of last year to £614million this year. Royal Bank of Scotland has increased its profits from its UK business by 9.2 per cent.

And yet the global company announced one of the biggest losses in banking history of £691million just last week.

Mortgage borrowers could get deals of more than 0.25 per cent below the Bank of England base rate a year ago on a two-year tracker mortgage, compared with more than 0.75 per cent above the base rate today.

Melanie Bien, director of Savills Private Finance, a mortgage broker, said: "Banks freely admit that they are chasing margin rather than market share since the credit crunch hit, which is making mainstream mortgages profitable again."

"Before the onset of the credit crunch lenders complained that it was increasingly difficult to make a profit on mortgages because of the cut-throat competition which meant they had to slash rates to attract business."

But she added: "Now lenders are in the driving seat and able to improve margins and profits while borrowers struggle to adjust to higher rates."

David Hollingworth, of mortgage brokers London & Country, said: "Volume was king because lenders were chasing market share. But that is no longer the name of the game as mortgages are no longer so freely available."

"As a natural consequence of that, lenders have put up their rates - initially to manage the amount of lending they were doing - but that has resulted in business now being done at a higher margin than in the last few years."

Mortgage borrowers are not the only bank customers to be affected by banks increasing their margins.

The Daily Telegraph revealed last week that those with accounts, credit cards and loans are also facing higher charges. Our research showed that it costs a borrower almost £700 extra to take an average loan of £5,000 compared to six months ago, assuming they repay over five years. A three-year loan over three years costs an extra £239.51 compared to six months ago.

It is also a miserable time for credit card holders as soaring rates mean it now costs £60 more to spend £1,000 on the average credit card compared to six months ago. This is because the average credit card interest rate has hit 17.4 per cent up from 16.8 per cent since February this year.

Current account customers have also lost out, being hit with punitive interest charges on authorized overdrafts - an extra 0.36 per cent compared to six months ago on average.

RBS admitted that it is making more money from mortgages, saying: "We saw the opportunity of the first half of this year to write good quality mortgages and improve market share at attractive margins."

A spokesman for HSBC: "Rates have changed in response to movements in the base rate. Our charges and rates remain among the most competitive in the market."

The other banks mentioned were not available for comment at the time of going to press.

A spokesman for the British Bankers' Association said: "UK banks offer a unique variety of services which are fee-free to customers but which cost banks to provide. High street account holders are not losing out to prop up business elsewhere where customers routinely pay for every transaction they make. Bank profits depend largely on wholesale rather than retail customers."

http://www.telegraph.co.uk/money/main.jhtm.../cnbanks111.xml