As mortgage and savings rates diverge, banks including Lloyds and NatWest stand to earn billions.

Following an upsurge of mortgage rate increases in recent weeks that have not been matched by increased savings rates, Lloyds, NatWest, and other UK banks are expected to earn billions of pounds.

As anticipation grows for another Bank of England interest rate hike on Thursday, all of the big UK banks have increased expenses, including HSBC, which changed mortgage terms twice last week.

According to Moneyfacts, this caused average two-year fixed mortgage rates to increase over the weekend, reaching their highest levels since the mini-budget numbers of last December.

Although banks have increased savings rates, these increases have been sparse, with Lloyds, Santander, and Barclays giving rates on Everyday and Easysaver accounts that are less than 1%.

This indicates that they are making billion-dollar profits from rising net interest margins. Moving to a more lucrative location is the only way to stop them from getting away with this, according to Sarah Coles, a Hargreaves analyst.

Over the weekend, NatWest made changes to its mortgage selection by removing two- and five-year fixed offers with loan-to-value ratios of 60%, 80%, and 85%.

The bank also raised rates on fixed 2 and 5-year 75% loan-to-value arrangements, with the lowest basic two now having rates of 4.94% and 4.59%, respectively, according to NatWest.

For a person moving into a £200,000 house, Lloyds charges a minimum of 6.25% on an 85% to 90% loan-to-value 2-year fix; this amount drops to 5.83% for a 5-year agreement.

Savings deposits are not the main source of funding for mortgages, claims AJ Bell analyst Laith Khalaf, but banks do "make a turn on the difference between savings rates and mortgages."

As bankers price in anticipated interest rate rises later this week, HSBC, Nationwide, and Santander Bank were among other significant lenders to raise rates recently.

Banks are starting to offer savings rates exceeding 4% to customers who are "happy with an account with restrictions," according to Coles.

There are certain limits, such as minimum monthly deposits and limits on the amount on which the higher rates are paid, but these accounts feature HSBC's 5% Regular Saver and NatWest's 6.17% Digital Saver.

(Sources: investing.com, proactiveinvestors.co.uk, reuters.com)