Just like any business, banks face costs of doing business and those costs can vary. The basic business of banking has always been to lend out money to borrowers at a higher interest rate than they are able to source the funding themselves.
For a while, banks were having to pay quite attractive rates on deposits. But that has changed over the past year. Indeed, deposits as a source of funding actually got cheaper last year, as banks started to rein in the interest rates paid out.Yep, all the poor mugs with money sitting in term deposits or online saver accounts - already earning a pitiful return thanks to record low rates - got squeezed even further last year.
Which they merrily tried to pass on to mortgage borrowers with increases to their standard variable reference rates of the same magnitude.
Great article. Very helpful.
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