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When mortgage/loan interest rates go up where does the money go?

Journalist: Samantha Downes (Soames), News reporter - freelance - national newspapers and trades

ended 24. March 2026

Listeners and readers have been asking me - the price of everything has gone up. Can someone explain what happens the extra interest I pay on my mortgage- does it make the bank richer or does that interest go somewhere else and where is the somewhere else?

Is the government getting all this extra money?

When the price of fuel goes up - who ultimately gets that money? The oil producers - so is it making BP and Shell richer or is it further up the chain.

I'm going to try and answer this at 5.15pm tonight

on Touchpoint Radio https://www.thetouchpoint.org/radio/ also on an app

4 responses from the Newspage community

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Editor
Martin Rayner
Financial Adviser at Compton Financial Services
Most lenders fund mortgages in one of two ways: from customer deposits or by sourcing money from wholesale markets (often linked to swap rates).

If lending is funded by deposits and savings rates don’t rise, lender margins can improve when mortgage rates increase. However, many lenders rely on wholesale funding, where their own costs have risen—so higher mortgage rates mainly reflect higher funding costs, not extra profit.

Wholesale rates have increased because expectations of future Bank of England base rates have gone up. This raises the expected future cost of borrowing, which feeds into today’s fixed rates.

A simple example: if something costs £1 today but is expected to rise, a supplier might offer a 2-year deal at £1.20 per month. That’s not extra profit—it reflects higher expected future costs.
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Editor
Steven Greenall
Mortgage and Protection Advisor at Protect & Lend
All of the extra interest paid on a mortgage goes to the Bank or lender as additional interest income. They will also be charged extra interest if or when they come to hedge their mortgage book but fundamentally goes into their bottom line.
When fuel goes up, the extra money is shared between all parties involved in the chain. The producer receives more, the government receives more in fuel duty and the retailer may receive a bit more too
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Editor
Nouran Moustafa
Practice Principal & IFA at Roxton Wealth
What people often miss is that when prices rise, the money does not move in a straight line to one winner, it moves through layers, and each layer protects itself before the consumer even sees the final cost. On mortgages, the extra interest you pay is not all going to the government. Most of it stays within the banking system and is used to cover the lender’s own funding costs, risk pricing, losses, operations, capital requirements and profit margin. So yes, banks can become more profitable in higher-rate environments, but it is not as simple as saying every extra pound is pure profit. Fuel works in a similar way. The higher pump price is a stack: crude oil, refining, transport, storage, wholesale costs, retailer margin and tax. That is why inflation feels so brutal in real life. In these periods, every part of the chain protects its margin, but the consumer is the only one expected to just take the hit. That is why people feel squeezed from every angle.
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Rohit Parmar-Mistry
Founder at Pattrn Data
In theory, higher mortgage rates largely reflect a higher price of money across the system. The bank earns more on the loan, but its own costs usually rise too: it has to pay more to attract deposits, borrow in wholesale markets and hedge rate risk.

The cynical bit is the pass-through is not automatic or symmetrical. Deposit rates often lag base rate rises, and banks may not match rises in full if competition is weak or customers are sticky. In that case, more of the extra you pay becomes a wider net interest margin.

That margin is not just “pure profit”. It also funds expected losses, capital buffers and operating costs. If margins stay higher, it can lift profits and retained capital, which can support more lending, but it can also mean borrowers lose out while savers see less of the upside.