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Big bank bosses grilled over rates, Consumer Duty and climate change

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  • 07/02/2023
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Big bank bosses grilled over rates, Consumer Duty and climate change
Looking at how banks pass on base rate changes to savers and mortgage borrowers is not “appropriate”, the CEO of Barclays said.

During a session with the Treasury committee about savings rates, mortgages and retail banking customers, Matt Hammerstein, CEO of Barclays UK, said comparing how lenders passed the base rate onto savers to how it affected mortgages was not an “appropriate point of focus”. 

Charlie Nunn, CEO of Lloyds Banking Group, Ian Stuart, CEO of HSBC UK and Alison Rose, CEO of Natwest Group also sat on the panel and agreed that the rates of their savings products had already been fed through to customers. 

When asked if lenders were better at putting rates up for mortgage borrowers than they were for savers, Stuart said he spoke to customers all the time who had asked him the same thing. 

He said when he looked back at the changes to the base rate over the years, the bank was being “honourable in passing them on in the same way”. 

 

Quick to put up mortgage rates 

Harriett Baldwin MP, chair of the Treasury committee, said the lenders’ savings rates were still below one per cent but they had been raised quickly after being asked to appear before the committee. 

She asked if the banks were “enjoying” the increase to their net interest margins and whether the Bank of England’s (BoE’s) term funding scheme had kept savings interest rates lower. The panel said no to the latter question. 

Baldwin also asked the panel how much their savings accounts generated in income. 

Stuart said it was difficult to get an exact amount because they did not record how much each savings product earned the bank. 

Baldwin said following the financial crisis, banks had “no idea what they were making from current accounts or savings products” and they were later “pressed” to provide that information which resulted in a change in behaviour. 

“I think it’s interesting that none of you can actually provide that information now,” she added. 

She asked if they relied on the “inertia” of customers to move their savings accounts away to another bank. 

Hammerstein said that was not representative of how they engaged with customers. 

He said feedback from customers suggested that they wanted to improve their savings habits and the bank encouraged them to make better decisions. 

Stuart said five and a half million emails had gone out to customers encouraging them to get onto better savings products. 

 

Keeping an eye on customer finances 

The panel also spoke about the impact of the mini Budget. 

Rose said it caused a “huge disruption” as gilt and swap rates grew “very quickly”. In response, Natwest introduced tracker mortgages to “help inoculate those people from the immediate crisis that was paying three per cent, and we gave them the option at any point to move onto a fixed product or a product of their choice if they needed to”. 

She said mortgage rates were coming down and the bank was looking at ways to help customers manage their finances. 

Nunn said Lloyds was assessing the customers who were under financial strain and found that about one per cent were struggling. As for mortgages, he said 10 per cent of customers would be seeing an increased mortgage cost when coming off a fixed rate this year. 

He added: “About one per cent of them we see having an increase in interest payments which will take them to above 40 per cent of their income.” 

Nunn said Lloyds was “laser focused” on how to support them and help manage their debt. 

As for the long-term impact of the market disruption, Stuart said at the time, his team were looking at “60,000 customers in December who were going to be impacted by an increase in mortgages”.  

He added: “That caused a lot of consternation in our organisation because the last thing I wanted was for customers to be forced into a mortgage product which was looking like seven per cent at that time.”

HSBC UK thought about introducing a mortgage product with a rate starting at a four but was unsure if that was possible, but noted that the market had calmed since. 

He added: “80 per cent of our time was focused on those 60,000 customers who were anxious.” 

Stuart also pointed to the five-year fixed mortgage it launched at 3.99 per cent. 

When asked about high standard variable rates (SVRs) and whether arrears had risen, Stuart said SVRs were not a long-term solution as most borrowers sat on them until better rates became available. The panel all said they had not seen a rise in arrears and these remained below pre-Covid levels.

 

Buy-to-let burden 

The panel was asked how it would help to support the social and private rental sector amid increasing pressure from the government. 

Nunn said it was a challenge on two fronts; the cost of maintaining a mortgage and the sustainability requirements coming in for landlords by 2026. 

“Those two things together are making the business case for some of our customers very difficult to stay in the buy-to-let space,” he added. 

 

Consumer Duty preparations

When asked how prepared they were for Consumer Duty, Stuart said HSBC UK were working on it. When asked if they would be able to introduce changes to their products and services in time, he added: “Yes, we don’t have an option”. 

Rose said Natwest was “working very hard” to implement it and this would be ready on time. 

Nunn and Hammerstein said their banks would also meet the deadline. When questiond whether they would ask ministers for the rules to be delayed, the lender representatives said no. 

 

Climate change and mortgage lending

The panel was asked what impact climate change would have on mortgage lending and if there were any disadvantages to properties which were prone to flooding. 

Rose said: “We need to make sure we allow housing stock and homes and homeowners to transition to a low carbon economy.” 

She said there was an affordability question, especially for houses in risky areas, but the bank was making sure they would continue providing mortgages and incentivise homeowners to make their homes more sustainable. 

“Homeowners should not worry about that, we will continue to provide support,” Rose added. 

Nunn said there were no plans to stop offering mortgages in flood-prone areas and the majority of customers in these areas were also offered insurance. 

Stuart said it was not a problem for just one bank, “but we need policies, and we need clarity”. 

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