Every rise in interest rates is a blow to British homeowners as the cost of tracker, standard variable rate and fixed rate mortgages rises.
So the prospect of a 15th consecutive Bank of England rate rise tomorrow from 5.25 per cent to 5.5 per cent, as the battle against inflation intensifies, will be unsettling.
It will also once again irritate savers, who many times outnumber citizens with mortgage loans and who rarely see the full benefit of rate increases.
Banks see higher rates as an opportunity to raise interest rate spreads – the gap between what they charge for loans and how they reward savers.
Better is expected from more specialized players such as Hargreaves Lansdown (HL), a FTSE 100 company, which aims to be on the side of private investors with a website packed with information.
The shift of investors’ choices from funds, unit trusts and shares to cash savings is generating a boom at Hargreaves Lansdown.
Over the last year, HL boasts of having attracted around £3.2bn into the company’s active savings product, where it offers to find the best deal for its customers. However, no one should think that this is some act of altruism.
Investors’ shift from funds, unit trusts and shares to cash savings is creating a boom.
It is the main factor behind the 50 per cent rise in Hargreaves’ pre-tax profits, from £269.2 million in 2022 to £402.7 million in the year just ended.
The company ensures that savers benefit from 85 percent of the increase in savings returns, meaning it keeps 15 percent. The net interest rate margin is set between 1.8 and 2 percent.
This may be less than the near 3 per cent margin of, say, Lloyds, but HL is not worried about mortgages or business loans going horribly wrong.
Its sole objective is to operate a secure and reliable platform for savers who pay transaction and asset management fees.
Even in this space, there is some room for concern. HL’s management fees are typically higher than its competitors, and some previous wealth list recommendations have turned out to be complete failures.
A quarter of HL investors, including directly or through their own funds (including this author), were exposed to the collapse of disgraced financier Neil Woodford’s fund empire in 2019.
A protracted investigation by the Financial Conduct Authority continues, although Link, the authorized corporate director of the Woodford funds, has agreed to pay £235 million in compensation.
HL, despite activist promotion of Woodford’s funds, has paid nothing and offered nothing resembling an apology.
Hargreaves’ new chief executive, Dan Olley, is keen to reinvigorate Britain’s lost love of equity investing, extolling America’s love affair with tax-advantaged 401K pension plans, among other things.
As critical as it is, it needs to re-engage with its 1.8 million customers. Interest rate margins have provided the group with an income cushion at a time when fees for share trading, fund management and advice have fallen and capital inflows have slowed.
If Hargreaves really wants to be on the side of savers, in what Olley calls a “challenging” economic climate, he should not accumulate surpluses at their expense.
saudi squirt
Rising crude oil prices are not the result of an unexpected jump in global growth.
On the contrary, the OECD warns that China’s slowdown is having a negative impact on the outlook for 2024.
The supply problems, such as they exist, are the result of Saudi Arabia’s leader Mohammed Bin Salman (MBS) effectively allying with Putin’s Russia to punish oil-importing nations.
There is very little talk of an axis of evil that is likely to prolong the global fight against inflation and punish the least advantaged in society.
It is a connection that fans of Newcastle United, the Liverpool that exports Saudi Jordan Henderson and the top golfers who receive the Saudi rial have no idea about.
MBS occupies a seat in the G20 because of his nation’s enormous wealth. But it’s our money he’s wasting.
True value
Eleven years ago, the IMF and World Bank quickly moved their annual meetings from Egypt to Japan amid political unrest on the streets of Cairo.
There is no turning back in 2023, as World Bank President Ajay Banga and IMF chief Kristalina Georgieva pledged to press ahead with next month’s meeting of global financial leaders in Marrakech, Morocco, despite the recent and devastating earthquake.
What a great way to show that the world is on Morocco’s side.
Some links in this article may be affiliate links. If you click on them, we may earn a small commission. That helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.
