Louise Cooper

The wealth transfer and where it’s going

The last three years have been one big transfer of wealth from savers to borrowers. Thanks to record low interest rates, savers have gained little from tucking their money away in bank accounts, whereas borrowers have reaped the benefits. According to data from the Bank of England, mortgage holders paid interest of £1328 billion in the three years from 2008-2011, compared to £1897 billion in the preceding three years. That’s a difference of £569 billion, or just over £50,000 for each of the UK’s 11.2 million mortgage holders. Call it a stimulus if you like. But it’s a stimulus that involves clobbering savers so that borrowers can buy a flatscreen TV at the end of the month.

There are signs, though, that this transfer is slowing. This is not because of anything that the Bank of England is doing, but because of the pressures facing the banking industry. Banks are still having funding difficulties, and the best quality and normally cheapest bank funds come from retail deposits – aka, savers. And so competition for retail deposits is increasing. In the last week, Halifax and Bank of Ireland have increased their standard savings rates. According to data from Defaqto, the average rate paid on a cash ISA has risen from 2.78 per cent to 3.35 per cent over the past two years. The banks are all trying to say to savers: ‘Deposit your money with us!’

We’re seeing a similar process with mortgages, to the detriment of borrowers. In the last few weeks, a number of banks have announced increases to the standard variable rates for their mortgages. Halifax is to increase its rate from 3.5 per cent to 3.99 per cent; RBS from 3.75 per cent to 4 per cent; Santander just a 0.1

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