People just need to cut back & they will be ok

[nameschangg]

Following a discussion on the radio about mortgages/col I made the comment that even for those that can afford the increased mortgage costs it's difficult to get one's head around paying more just to service debt. Colleague replied that's exactly the problem & the media are over egging it. His argument was recent buyers have stress tested & many will still have seen jumps in house value. He said any older buyers will likely have a ton of equity so can just shift to interest only or sell. His main argument was people can afford the rises & they just don't want to give up the nice things they are used too. He said the gov know this & know how much people saved in lockdown. Admittedly everyone in the office did say they saved quite a bit (including myself). I argued that not everyone fits that criteria but he believes the majority do & the media needs to stop scaremongering. Does he have a point?

I didn't save more during covid, and I'd argue alot of people who lost their job during covid or have had to use any extra money to cover bills/expenses also didn't.

Your work colleagues are showing their privilege.

Also why should we give up 'nice things', why should like be whittled down to work and bare essentials?

There will be a range of people. For some cutting back will be all it takes. Personally, I have no debt and a small mortgage so cutting back is all that will be needed.

For others, especially those with high mortgage, cars on finance and lots of debt it will be catastrophic.

We can't blame those in that situation - they were encouraged to live that way.

I'm currently studying an economics degree and when a government want 15 years of overspending they make it incredibly easy to over spend. The general public are just a pawn in a bigger game.

Not everyone saved money during lockdown.

Not everyone is in the same situation as they were in lockdown (three years ago).

Stress testing didn't account for huge increases in food and utility costs at the same time as increased mortgage costs.

Of course, some people will be able to ride the storm by tightening their belts but reduced leisure spending will have a knock on effect in that sector, leading to more job losses, business failures etc, meaning households that rely on those incomes will struggle, especially if they also see rising costs....

@snoopybus I did say not everyone saved. He thought that the home owners are more likely to have been the ones to save as to be a new entrant into owning a house means you are already likely more privileged. He did concede that older entrants wouldn't have had that privilege but would have had the benefits of price increases & yrs of low rates.

Hmm yeah but the 'nice things' in life are what keeps the economy going round....

Stress testing didn't account for huge increases in food and utility costs at the same time as increased mortgage costs.

I did make that point.

Utility and food prices are coming down.

Little consolation, but it does appear to be relenting

Agree with this
I might be ok if I stop buying clothes, books and going to restaurants, etc.
If everyone stops doing that, then lots of businesses will go under leading to unemployment and more stress in the economy.
When he says older buyers can sell, what does he mean them to do then? Rent or downsize? And who will be buying their houses?

Most people are living within their means and it's all getting more and more difficult. It's not right to expect a working couple with a family to sell up their 3 bedroom house , which they could afford, and move into a 2 bedroom flat.
They should be able to afford to house their family adequately if they were

• paid a fair salary
• houses were affordable

This is all very wrong.

When he says older buyers can sell, what does he mean them to do then? Rent or downsize? And who will be buying their houses?

He said very few would be forced to sell as most would have equity.

@Draconis I think he was saying that although painful in the interim long time very low rates are bad & one of the reasons for zero growth in salaries.

I bet stress testing didn’t take into account having children and childcare cost.

My Dad drummed into me stories from the 80s when his mortgage was really high and as a result I have always stress tested my mortgage for this.

Food costs aren't going down, they're just not increasing as quickly as they were.

Unfortunately, it's just not as black and white as cutting back for most people and for those who can, it's a lucky situation to be in, even if it might not feel that way.

It's very much a cumulative effect, absolutely everything has gone up and I don't know anyone that's had an inflationary pay rise. If it was a mortgage in isolation, it'd be okay, but it feels pretty rotten to cancel swimming lessons etc.

It will be a mix of the two. Some people who will be in dire financial straits - and then this group and can be further divided into those with options, such as downsizing, and those without. And some who will manage but are upset about the reduction in discretionary income and lifestyle.

There’s some truth. Those who’ve owned houses 20+ years have likely made a lot of profit. That will never happen again. We’re buying a house for £440k which the owner bought for £50k 30 years ago. She’s done no work on it. I cannot get over the injustice of that

They are not going down, they are going up.

The speed at which they are going up is slowing, but the prices still rise and rise.

@Lcb123 yes I agree those days are gone & admittedly do resent the high prices I've had to pay.

Well they do specifically ask if you are expecting any changes to your circumstances that might result in a drop or income / increased living costs (eg having children / giving up or reducing work!). Anyone planning, or thinking about having children/ more children should factor it in.

In reality I think most people borrow to the hilt to get the best house they can, which I suppose is an understandable risk to take.

I like how you have expressed your colleagues opinion and not yours on AIBU. I might try that next time so I can avoid the direct 🔥

The reason why the economy is still growing despite the sharp interest rate hikes might be because a significant number of people saved a lot during lockdown. I also think the amount of money given out during lockdowns lead to the house price boom. What would most people do with lump sums of cash? My guess is upgrade their lifestyle/ home. My best guess is we are on a come down.

If we can all manage to stay afloat one way or another over the next couple of years I reckon low interest rates will return and we will have slightly better salaries and maybe, just, maybe slightly lower house prices. In my opinion that might not be a bad outcome from all this turmoil.

Your colleague is a plank. I am an "older" buyer.....who had to buy when the market was high in the late 90s. My neighbour who recently sold and whose property is the same as mine didn't make that much. Her "equity" has gone into her new property. People still need somewhere to live so it's not selling up and making a bomb.

@Meltingpots apologies I thought it was obvious. I feel like people are going to really struggle & that the media aren't over egging things. I've been on lots of threads this wk saying as such but obvs name changed. I did find his points curious as i've not heard that pov. The normal opposite one to me is "people should have not overstretched", etc.

seems similar with eg ninja loans that helped finance the 2008 crisis

Lots of people will be able to cut down, but many won’t. We could (luckily) but then the bank will be getting our money (in higher interest, which they won’t pass onto savers) rather than it going into local businesses/Amazon/travel etc.

That’s the whole point, of course, and no one will cry over Amazon losing sales, but the knock on effect on the wider economy of millions of people “cutting back” will be shocking.

Many commentators (and politicians!) aren’t being clear enough that this is exactly what the BoE wants to do - cause a recession to tackle inflation. The problem is they don’t know whether it will be a small recession or a massive one.

And for people who have already cut everything to the bone...?

Well it’s not true for me.
Or at least, the little I did save in lockdown went towards a 10% deposit buying my first home, an extremely modest (and vastly overpriced at the time) 2-bedroom terrace, which I am rather afraid I may lose again in 3 years time if the situation doesn’t ease. On my single-salary public sector pay, I’m not expecting much of a payrise anytime soon ☹️

Ok thanks for clarifying your view. Yes I do think some people will really struggle, it will be on a spectrum. I can say how it has effected us and that's probably a decline of £1200 disposable. That's pretty miserable, but I know eventually we will return to an economic boom and things will go good.

I kind of think we can either dwell on it or do things to still move forward. I made the decision to not let this turnoil bring me down and it's not going stop me building a better future. We have just had to adjust the plan! We were going to remortgage when it was so cheap. We were going to get an extension and a nice car. But we've changed our minds now and decided to spend our savings on reducing our mortgage, not taking holidays, not eating out. We spend our weekends gardening and doing DIY projects. We go out for ice cream instead of meals. I want to look back in a couple of years time and at least be able to say we managed to do the patio, garden and pay off a chunk of the mortgage!

I might be going off track, but yes it sucks for people with mortgages that are due for renewal, especially those who have recently bought.

The news is designed to petrify us. Everyday I read it and it's like being tazored.

How will it effect you?

And for humour purposes..how do you think it effect your colleague? (I suspect not much 😂)