UK (Parliament Politic Magazine) – The UK’s financial watchdog, the Financial Conduct Authority (FCA), has issued a stern warning to banks that offer unreasonably low savings rates to their customers. In an effort to ensure that banks pass on interest rate increases to savers, the FCA has implemented new regulations that demand banks demonstrate their commitment to providing fair value to customers.
This move by the FCA aims to protect the interests of savers and hold banks accountable for their actions. By enforcing these rules, the FCA is determined to take robust action against banks that fail to meet the required standards.
In a separate initiative, a campaign has been launched to assist individuals struggling with mortgage repayments. Lenders have taken the initiative to promote the support available to mortgage holders facing difficulties in meeting their repayment obligations.
Bank Of England Raised Its Base Rate To Reduce Inflation
The Bank of England has recently increased its base rate for the thirteenth consecutive time in an effort to combat inflation, and it is anticipated that another increase will occur this Thursday.
However, while mortgage interest rates have surged, savings rates have not experienced the same level of growth, especially for easy access accounts. Earlier this month, the Financial Conduct Authority (FCA) questioned the leaders of major banks and building societies regarding concerns about the low savings rates.
The FCA discovered that, on average, the nine largest savings providers only passed on 28% of the base rate increases to their easy access accounts between January 2022 and May 2023. There was a slightly higher increase for notice and fixed-term deposits, with 51% of the base rate rises being passed on.
To ensure that interest rate rises are appropriately transferred to savers, the regulator has outlined a comprehensive 14-point plan. According to this plan, firms offering the lowest savings rates will be required to justify by the end of August how these rates provide fair value, or else face potential consequences.
FCA To Use New Consumer Protection Rules
The Financial Conduct Authority (FCA) will also release a biannual analysis of easy access savings rates offered by various firms, ranking them from best to worst. Sheldon Mills, the FCA’s Executive Director of Consumers and Competition, emphasized the importance of fostering a competitive cash savings market that benefits savers. He called for swift adjustments to interest rates following changes in the base rate and urged firms to actively encourage savers to switch to accounts offering higher rates.
While acknowledging the progress made thus far, Mills stressed the need for expediting these efforts. To ensure compliance from banks, the FCA will utilize new consumer protection rules that came into effect on Monday.
Dubbed the “Consumer Duty,” these regulations are hailed as the most significant overhaul in the finance industry’s regulatory landscape in decades. The primary objective is to ensure fair treatment of individuals and provide them with financial products that are easily comprehensible.
The Consumer Duty aims to eliminate hidden charges and obligate providers of products like savings accounts and mortgages to inform customers about any superior deals available to them.
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Mortgage Help To Be Provided To The UK Citizens
The lenders launched an advertising campaign on Monday to assist individuals facing difficulties with mortgage repayments. The campaign will highlight potential solutions such as extending mortgage terms or temporarily switching to interest-only repayments.
This initiative follows a meeting between bank executives and the chancellor last month, where they discussed strategies to support mortgage holders. Those with variable or tracker mortgages have experienced a significant increase in their monthly payments in recent months.
While homeowners with fixed-rate deals have been shielded from rate rises, individuals seeking to renew their mortgages for first-time buyers have encountered more expensive options.
Despite these challenges, the latest data from the Bank of England revealed a rise in mortgage approvals to 54,700 in June, the highest figure since October of the previous year when the housing market was impacted by the mini-budget’s consequences.
UK Finance, the representative body for banks, has launched the Reach Out campaign to encourage individuals struggling with their mortgages to proactively contact their lenders if they are concerned about meeting their payments. According to UK Finance, lenders have assisted over 200,000 borrowers unable to fulfill their full mortgage payments in the year leading up to January 2023.