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Are UK banks profiteering from reduced UK base rates?

If you read the financial press today you will no doubt come across a number of "sob stories" from the UK financial sector citing significant increases in the cost of finance and falling demand. However, you may not be as sympathetic towards their cause once you learn that the average mark-up on a tracker mortgage has increased from 1.18 percentage points in April 2008 to a significant 3.2 percentage points today. In effect the UK banking industry is making three times the profit margin today than it was just 12 months ago, all at the expense of the UK consumer.

Over this period we have seen UK base rates fall from 5% to just 0.5% although much of this significant reduction has not been passed on to the UK consumer. When, or if, we might see a return to more traditional profit margins remains to be seen but this is unlikely to happen until significant competition is injected into the sector. Despite the recent one percentage point reduction in its two-year fixed mortgage rate, HSBC has yet to see any of its competitors follow suit. At some point the sector will return to "the norm" but until now it seems as though UK mortgage providers are happy to charge significant premiums.

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