Banks profiteering on mortgages with record gap between borrowing and lending rate

The difference between the interest rate that banks charge and the rate at which they borrow is the biggest since the Bank of England started collecting data 15 years ago.

The figures demonstrate that, two years after the credit crunch began, consumers are being hit harder than ever, despite the Bank cutting interest rates to an all-time low of 0.5 per cent.

Last night senior politicians and campaigners called on banks, many of which have been propped up with billions of pounds of taxpayers’ money, to “play their part” by lowering borrowing costs.

Today Mervyn King, the Governor of the Bank, is to unveil his latest quarterly predictions for the economy. He is widely expected to say that lenders are failing to pass on billions of pounds of government support to consumers and small businesses.

The Bank’s statistics show that the average two-year fixed rate for new mortgage customers climbed to 4.46 per cent during July, with the average five-year fixed deal hitting 5.7 per cent.

According to analysis by Michael Saunders, the chief UK economist at Citigroup, the difference between these rates and the rate banks charge each other is at a record margin. Banks are making a full 2 percentage points of profit on fixed rate mortgages – the first time this has happened, the Bank’s data indicated. Two years ago, lenders made 0.1 percentage points profit on a five-year deal.