Concerns over competitiveness of state funded banks

State funded banks are becoming less willing to actively compete with privately owned rivals, according to Moneyfacts.

Last week saw the one year anniversary of the Bank of England dropping its base rate to the historic low level of 0.5%. However, despite this, some banks have become less competitive during the last year.

In a table of the rates from the main UK banks over the last year, Moneyfacts showed that Cheltenham & Gloucester and Nationwide's rates on the average two-year fixed-rate deal at 75% LTV had increased from March 2009 to March 2010.

The financial information provider says although state-funded Royal Bank of Scotland performed well, other state funded banks such as Halifax and Northern Rock have struggled to meet the same grade.

Stricter rules for building societies over funding and capital reserves could go some way to explaining why Nationwide also appeared to finds itself less able to compete, it added.

Michelle Slade, spokesperson for Moneyfacts, says that with the large amount of money which has been pumped into the state owned banks, many people hoped that they would be the most competitive in the mortgage market.

She adds: "Some state funded banks appear to place a higher priority on getting out of Government ownership, rather than helping with competitive rates the customers who supported them. Unless more lenders become willing to lend, the mortgage market will continue to stagnate."