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How do the interest rates in the financial sector compare to base rates?

With UK business base rates at 0.5%, and likely to stay there for the foreseeable future, now would seem like a perfect opportunity to compare interest rates across the financial sector against UK base rates. So who is benefiting from reduced base rates?

In the mortgage sector, the situation with regards to two-year and three-year mortgage rates shows that there is currently a margin of 4.5% with mortgage rates having climbed as high as 5.17%. However, members of the banking sector argue that as some savings accounts are now paying 3% interest on deposits this does in fact leave very little margin for profit when you also take into account expenses. However, how many savings accounts do you know which pay 3%?

The traditional loan market is another sector which has seen gross margins increase with rates now approaching 13% on average compared to UK base rate of 0.5%. While lenders suggest that the difference has widened because of the increased risk in lending to UK consumers and UK businesses, is it really possible to justify a gross profit margin of 12.5%?

These are just two situations which reflect the difficulties faced by the UK banking sector, UK consumers and the UK government. It is impossible to forecast with confidence as and when base rates and financial interest rates will return to "normal".

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