Homeowners could be paying over £100 extra a year on mortgage

According to a recent report the average homeowner in the UK could end up paying over £100 a year extra on their mortgage as a result of the bailout of failed Icelandic banks and the Bradford & Bingley. One finance expert said that the bailout had resulted in homeowners being charged around an extra £108 a year because of home loan rates being pushed up as a result of the bailout. These figures come from John Goodfellow, who is the chairman of the Building Societies’ Association.

He said that banks and building societies have to provide support to the Financial Services Compensation Scheme, which provided bailout funding. Due to the state of the financial sector the combined contributions of banks and building societies has rocketed from £30 million a year to £1 billion a year. It is thought that the costs for banks and building societies could continue to climb as chaos continued throughout the financial markets.

Mr Goodfellow said: ‘The FSCS fees have resulted in a considerable increase in building societies’ own expenses – an increase that can have an impact on building societies’ interest rate decisions in the light of last week’s Bank base rate reduction. Even now we have not been told what the impact of the Icesave bailout will be on societies’ contributions to the FSCS, so we already have a known unknown in the system to try to address.’

One broker said that many financial institutions prefer to add a little to borrowing rates to cover these costs than to cut savings interest rates.

He said: ‘Savers are much more important to building societies at this time and it is no surprise which option they choose if they have to decide whether to lop of bit off savings rates or add a bit to mortgage rates.’