Banks' overdraft rates hit record level of nearly 20% crippling thousands of customers
Average overdraft rate nearly 40 times higher than base rate at 0.5%Banks stinging mortgage customers with average standard rate of 4.32%
10:35 GMT, 30 November 2012
Banks are being crippled by the highest ever bank overdraft rates.
The Bank of England revealed yesterday that the average overdraft rate has reached a record of 19.65 per cent, which is nearly 40 times higher than the base rate, currently at an historic low of 0.5 per cent.
If you had an overdraft of 1,000 for a year, this means it would cost 196 – and this is before you have paid off a single penny of the actual debt.
Crippling: The Bank of England (pictured) has revealed that the average overdraft has reached a record of 19.65 per cent
To make matters worse, it comes at a time when millions of families are suffering a ferocious squeeze on their finances from low pay rises, tax rises and the high cost of living.
Andrew Hagger, a personal finance analyst from the website Moneycomms.co.uk, said: ‘The record cost of overdraft borrowing is an unwelcome drain on the family budget which is already being hammered by rising fuel, food and energy bills.
‘It is tough for consumers to swallow, and what is more worrying is that the official figures don’t take account of the increasingly common and more expensive flat fee tariffs.’ He said banks and building societies are increasingly changing their overdraft charges, and introducing a daily fee, rather than a high rate of interest.
For example, Nationwide’s new FlexDirect current account charges 1 per day for an authorised overdraft and 5 per day for an unauthorised overdraft, subject to a maximum charge.
Banks and building societies are also stinging homeowners with the highest variable mortgage rates for more than three years
The Bank’s figures, published
yesterday, show it is not just the millions of people whose current
accounts are in the red who are being hit by rate rises by Britain’s
banks and building societies are also stinging homeowners with the
highest variable mortgage rates for more than three years.
Banks and building societies are changing their overdraft charges and introducing a daily fee
The average standard variable rate, known
as an SVR, has hit 4.32 per cent, the highest average rate since March
2009, the month the Bank cut the base rate to 0.5 per cent.
This is the type of mortgage deal which
homeowners are automatically moved onto when their current deal, such as
a two-year fixed loan or a three-year tracker, comes to an end.
Many are ‘trapped’ on this rate because they cannot switch to a different deal or a rival lender because they are too high risk, are in negative equity or their deposit is too small.
In recent months, a growing list of lenders have been increasing their SVR, blaming the high cost of funding.
Banks, such as Halifax, Santander, Yorkshire Bank, the Co-op and Bank of Ireland, have all recently increased their rates in a move which hits their loyal customers.
The rate rises come at a time when banks are reaping the benefits from the 80billion Funding for Lending Scheme, launched in August, which is giving them cheap money.
Under the scheme, banks and building societies can borrow an unlimited amount of money for as little as 0.25 per cent as long as they maintain, or increase, their lending.
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David Hollingworth, from the mortgage
advisers London & Country, said the rising cost of an SVR mortgage
should kick-start people into finding a better deal.
He said: ‘Increasingly, SVRs have become a lot less of a comfortable place for homeowners than it used to be.
‘Many people who have stuck with their SVR would be better off moving to a different mortgage because better rates are now on offer.’
A Council of Mortgage Lenders spokesman said it is wrong to assume that banks can borrow money to hand out in mortgages at the Bank of England’s base rate of 0.5 per cent.
She said: ‘People tend to assume that the cost of funds to lenders equates to the base rate, but this is not the case.’