Santander price hikes

Changes for Santander customers:

123 Current Account, monthly fee goes to £5 from £2

123 Credit Card annual fee rises to £36 from £24

123 Credit Card cashback reduced...
e.g. 1% on supermarket spend and 2% on department stores limited to £3 a month each

Affects 3.6 million current account customers, and 1.8 million with credit cards

Blow for credit card customers softened by temporary holiday from 2.95% foreign transaction charge

Compensation for 30,000 Santander borrowers

30,000 Santander mortgage customers could be eligible for compensation, after the bank failed in December 2008 to tell them they they would be able to cash in their mortgages without penalty.

The bank had changed the terms of the mortgages, to allow itself to keep interest rates higher - but didn't inform borrowers clearly that they had 3 months to switch to another lender if they wanted.

Santander would not give details on the extent of the compensation. It's likely that payments will range from several hundred to several thousand pounds, depending on the size of the mortgage.

The bank set aside £232m at the end of last year to cover this issue along with several others.

Santander is writing to write to 270,000 customers with mortgages under the Abbey brand that they may not have been given adequate information about their rights.

It'll, then be up to the customers to complain if they think they might have lost out.

Explanation

Santander had fixed rates with an Early Repayment Charge (ERC) which extended across the fixed rate period and into the time afterwards when the loan turned into a Standard Variable Rate (SVR) mortgage.

So, for example, you might have 2 yrs fixed and 2 yrs on an SVR with an ERC. Those terms look pretty surprising since it is common practice for SVR mortgages NOT to have the repayment penalty.

They had a limit on how high the SVR could rise above the Bank of England's base rate, what they called the SVR cap margin.

In December 2008, they raised the SVR cap margin from 2.5% to 3.75%, while also cutting the SVR because Bank base rate was on the way down.

It's complicated, I know. The result was that the SVR was reduced but by less than it would have been under the old terms.

SVR fell from 5.44% to 4.94%, rather than to a maximum of 4.5% under the old terms.

So the unwitting borrower was paying more and might not have realised that there was a 3 month window in which the affected customers could switch to a better deal from another lender, without penalty.

The 3 months kicked in during the SVR or, if you were still on the fix, once it turned into an SVR. That might have been after December.

Santander mortgage rise

Santander mortgage customers on Standard Variable Rate face a hike in their payments from today.

The typical customer will have to shell out and extra £26 a month.

They're not the only ones: Co-op Bank, Halifax, Bank of Ireland and the Yorkshire and Clydesdale banks have all imposed similar increases this year.

But Santander's rate is already pretty high. Now it'll be 4.74%, compared with Halifax's 3.99%.

Here are more details from BBC Online.

And here's how the Co-op blames interest-hungry savers for the round of SVR increases.

Santander mortgage rise

Hundreds of thousands of Santander mortgage customers face an increase in their payments from October after the bank announced it was planning a rise in its Standard Variable Rate, or SVR, of half a percentage point.

The rate will move up from 4.24% to 4.74%, resulting in an average increase of £26 per month for a £100,000 mortgage

Santander said it was writing to mortgage customers to tell them about the change, which it intends to implement from 3rd October.

It explained that for the last three years the amount it costs to provide mortgages and the rates offered to savings customers have been increasing despite the Bank of England's base rate remaining static

Santander will also be writing to large numbers of borrowers who are currently on fixed rates or trackers which will revert to SVR over time. However, customers with Alliance & Leicester branded mortgages and paying SVR are not affected.

The increase follows similar moves this year from the Co-op Bank, Halifax, Bank of Ireland and the Yorkshire and Clydesdale banks.

Bank scare stories

One newspaper told us this morning that the Spanish banking crisis had hit the UK High Street.

They were referring to a credit rating agency, Moody's, downgrading Santander UK from A1 to A2, with a negative outlook.

To most people this means nothing, but it does make you ask: "Should I panic? Should I pull out my money?" etc etc

1. What is a credit rating agency?

It tells investors how risky it is to invest in companies, including banks. A lower rating means it's slightly riskier.

It is not telling customers whether or not their bank is about to fail.

2. What are they saying about Santander UK?

That it's slightly riskier than before, though not as risky as its big Spanish parent, Santander.

The A2 rating is still firmly "investment grade", as are all the big High Street banks in the UK.

3. How does Santander UK compare?

The highest rated UK banks are HSBC and Barclays.

But another big bank, RBS (which includes NatWest), has a lower rating than Santander UK.

So it's in the middle of the pack.

4. What does Santander UK say?

That 90% per cent of its assets are safely in the UK.

And even Moody's says that it's highly unlikely that the UK banking watchdog, the FSA, would allow this money to be used to prop up Santander in Spain.

What does all this mean? Don't panic - just calm down.

NB The FSCS protects deposits up to £85,000

Cheap loans for small businesses

What difference will the government's new National Loan Guarantee Scheme make to a small business?

Quick recap: Mr Osborne guarantees £20bn of fundraising for banks over 2 years, so they can raise money at a cheaper interest rate than normal to lend on to small businesses.

The technical name for the policy is "credit easing".

Full details tomorrow, but the burning questions for the firms and traders concerned will be what's it worth, can they get it and how much is available?

1. What's it worth?
Up to 1% off the interest rate you would have been charged outside the scheme.
One big bank offers an average interest rate to small business of just under 3%, with the vast majority of loans under 6% -- so 1% off that is a decent amount.

2. Can I get it?
You have to  pass the same credit checks as normal. There's no special leniency.
New and existing borrowers will qualify.
The lending is expected to be fixed rate and you're likely to have to provide security, either business property or your own home.

3. How much can I borrow?
There's no upper limit and loans will go right down to £1,000, though not all banks will go down that far.
Terms are likely to be 3 or 5 years.

4. How many loans will be available?
The scheme will only cover a minority of small business lending during the 2 year period.
So if it proves popular, it'll be...buy now while stocks last.

We know already that RBS/NatWest, Barclays, Lloyds, Santander and Aldermore will be offering the discounted loans, not HSBC.

Will it work? It seems likely that a lot of firms will be able to take advantage of the scheme, even though they would have borrowed the money anyway.

But the cut-price loans and the publicity could tempt some new borrowers who are ready to expand.

The banks' vice-like grip on our money

Our five top banks control 85% of all current accounts - that's Lloyds, RBS, HSBC, Barclays and Santander.

They use that to sell us other things: 88% of current account customers have savings accounts with the same bank, 53% have credit cards with the same bank and 42% have their bank's Cash ISA.

Banks earn £8.3bn in revenue from our current accounts, or £152 per account. Half of the income comes from pocketing the interest they make on our cash.

Most of us have a suspicion that we ought to switch to a better current account. Banks say only 7% of us bother to switch each year. Others put the figure as low as 3%.

Compare that to the 26% who switch energy provider or phone company.

In spite of the hold these banks have on us, we're frightened of taking our business elsewhere.

But maybe, on Monday, things could start to change.

Sir John Vickers' Independent Commission on Banking is due to recommend ways of loosening the banks' grip on our money - by beefing up competition.

We'll see.

Forget about ISAs - pay off the mortgage

Look at your interest rates, think about bankers' bonuses...and weep.

I'll get to the nitty gritty about Individual Savings Accounts in a bit but, first, the big picture.

The average interest rate earned on a tax free Cash ISA at the moment is a mere 0.43%, according to the Bank of England. Compare that to the average rate paid by UK homeowners for a tracker mortgage: 3.54%.

The difference is a whopping 3.11%. This is the amount that is creamed off by banks at our expense, to bolster their balance sheets after the banking crisis.

So consider the predicament of the retired couple dependent on savings interest to bolster a modest pension income. The couple is having to dip into savings to pay household bills because the interest is so meagre.

They are doing without, the bank is counting the profit and the bank's bosses are taking multi-million pound bonuses from the proceeds.

The 3.11% margin compares to 3.23% a year ago, 3.34% in 2009, but just 0.92% at the same point in 2008.

Now look at the latest rates being touted for Cash ISAs. If you believe the press we are being wooed with irresistible deals in advance of the the deadline for 2010-11 ISAs at the beginning of April.

AA offers 3.5%, Santander 3.3%, Barclays 3.25% and Nationwide 3.1%.

Lop off the temporary bonus included in the rate and that translates to: AA 1.85%, Santander 0.5% (!!), Barclays 2.25% and Nationwide 1.75%.

For those of you with spare cash and no debts to pay off, the mortgage especially, these rates might give pause for thought. If you are going to salt money away, you might as well do it in an account where no tax is charged on the interest.

But the rest of us have to compare ISA returns with the cost of our mortgages. As I mentioned, we are paying 3.54% on average for a tracker. The typical Standard Variable Rate mortgage costs 4.02% and the typical 5-year Fixed Rate costs 5.17%.

It is no surprise then that families have been using any spare savings to pay off their debts. Better to use your money to reduce a 4%-or-so interest burden than clock up a 0.43% gain.

The pay-off-your-mortgage strategy makes even more sense now that we face a rise in the Bank of England's base rate. We don't know precisely when it will happen, but most forecasters expect a move this year.

The increase, when it comes, will be a shock for millions of homeowners with variable rate mortgages.

There is a sub-class of borrowers who are on astonishingly low mortgage rates from before the financial crisis and others who are locked into fixed rate deals where no repayments are allowed.

But the rest should be very wary of banks bearing gifts in the shape of Cash ISAs.