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?

@3BSHKATS
Are you kidding me? I literally saved another house deposit during Covid. My income went up exponentially and I had literally zero outgoings.
I know other people who saved tens of thousands of pounds

Looks like money can't buy tact or class for some people. What a goady, small minded post

If your economy depends on people buying stuff, stands to reason those people will need more money to do that, not less.

I think it was pretty dam rude to imply that everybody was on their arses as a result of Covid, some of us saw it as an opportunity to work extra hard and save. If you didn’t I’m afraid that’s on you but again you can’t keep using it as an excuse. It was three years ago how long are you gonna try and milk that one for?

Maybe the plan is to drive all the small independents out of business, because they're all little people like their customers.

Then all the chains will hoover up any custom there is left?

Another factor in all this that probably hasn't fully played out yet is the enormous amount of debt that all the chain restaurants and a lot of retail chains are propped up by.

So it's quite likely that they'll suffer their own 'rate shock' when fixed rate loans come to an end and continuing the debt becomes much more expensive to a degree that it might not be economic to continue, then they'd need to be sold or go out of business.

@3BSHKATS I think it was pretty dam rude to imply that everybody was on their arses as a result of Covid, some of us saw it as an opportunity to work extra hard and save. If you didn’t I’m afraid that’s on you but again you can’t keep using it as an excuse. It was three years ago how long are you gonna try and milk that one for?

I'll tell that to my step daughter who was not only furloughed from her job as a waitress, but then lost it fully as the restaurant closed, and my uncle who was furloughed at his job as a mechanic for being over 50 (not his choice). Suppose you had a nice cushty job either WFH or one that was allowed the privilege of being able to function in the pandemic.

What I would say to your stepdaughter or your uncle is if you’re given lemons, start making lemonade.

I was self-employed, my entire industry closedown on 23 March 2020. I had to refund £40,000 to customers on that day.

You have to move on, it’s been three years.

Interesting points.

The point of the interest rate hikes is to cause economic pain. They are trying to take money out of the economy and yes this will hurt individuals and businesses. The issue is that the external factors that were previously responsible for inflation are in decline yet our inflation rate is sticking. This means that inflation has become an internal issue and our economy is running hot - it is core inflation that is now at its highest point since 1992 and this measures and goods and services excluding food and energy costs. People are still spending on holidays, restaurant, leisure, entertainment and in the service sector prices are still rising. Wage inflation is also causing issues as business put those costs into their selling prices. It looks as though a forced recession is now inevitable.

Agreed... it's such a blunt tool though. And slow to work because raising the interest rates only affects those with mortgages or other debts. About a third of the population lives in a house owned outright, so it has no effect on them (unless they have other debts affected by interest rates). Most people are on fixed rate mortgages, so again slow to work as it's only once the fixed rate ends that the new rate hurts.

Yes I agree, rates should have started increasing sooner at a higher and faster rate to have more impact. Many last year would have jumped on fixes when they saw rates rising, myself included. We were fortunate to lock in a sub 2% rate for 10 years. I think this is why a forced recession is now being seen as the only way out of this mess.

It's obvious what they're trying to do. Much less clear that it's a good idea or going to work anyway.

Forced recession? Sorry, but based on my bad experience during the last recession we had, I cannot see how that is going to help the country and the citizens?
Why can't we address the internal cores issues? And stop the climb up the prices ladder.

I saved quite a bit during lockdown but hell, that was three years ago, I’ve since spent it on cruises and gin

The truth is that people will sacrifice a lot to keep their home. No one wants to compromise quality of life but if it's a choice then they will stop going on holiday, have a cheaper car, stop buying non essentials etc, rather than sell. Of course they don't want to stop their kid's violin lessons or their own gym membership but they will do it if they have to. That is the point of raising interest rates and it will work. (Not saying I agree with the policy)

Affordability testing before taking out a mortgage means that most people can afford a significant increase. Pre COVID, mortgages were a lot less than rent of an equivalent property. It's not like 2008 when lots of people had unaffordable mortgages.

High interest rates also deter people from taking out loans and mortgages so it affects more than just mortgage holders.. Those who would have spent on credit cards or taken out personal loans or bought hire purchase furniture etc

Yes he's probably right. If I gave up nice things like food, and a mortgage I think I'd be alright 😏

Not all of us were stress tested - I got my mortgage 15 years ago before it was such a thing. Since then I have got divorced and gone from full time to part time so that I can look after my children more effectively - actually I was made redundant and then got a part time job as being separated at the time was causing me a childcare headache. Mortgage was always in just my name though (long and different story). Sadly I’m about to inherit enough to pay off my mortgage (sadly as my DF passed recently). Had I not been getting that inheritance my mortgage deal would be going up next month to amounts I would be struggling to afford as I have already been living within my means but spending everything I earn on food and bills etc.

Also I didn’t save through lockdown. I spent more if anything. I’m a teacher in a sen school so we worked throughout lockdown so still had travel expenses. Kids had to go to school also. Lots of things bought online. We don’t really ‘go out’ anyway so didn’t save what we hadn’t been spending. National trust and EH memberships were still paid out despite not being able to use them for example.

Are you kidding me? I literally saved another house deposit during Covid. My income went up exponentially and I had literally zero outgoings.
I know other people who saved tens of thousands of pounds

What line of work are you in @3BSHKATS ?

I think one thing that is different now is that raising interest rates isn’t as effective as it once was at curbing spending. Back in the 80s most people were on variable rate mortgages - a rate hike had an instant hit on people’s pockets, likewise most loans, credit cards weren’t fixed rate in the way they are now. I have some credit cards, loans but they’re all fixed rate - most at 0% so those payments are fixed and I won’t feel any pain.

“Why should we give up nice things?”Because that’s the only way to get inflation under control, reduce the amount of disposable cash people have. It’s brutal but that’s the situation.

your correct but part of the strategy to reduce inflation is to ‘encourage’ people to spend less, I think I heard that one of the reasons inflation hasn’t decreased further is an increase in spending on eating/drinking out. I thought it was odd that had increased when we are in a cost of living crisis hence remembering it. The truth is that some people can cut back and others won’t be able to for multiple reasons and so many people have become accustomed to low interest. I took a 10 year fixed rate about 2 years ago accepting I was paying a slightly higher rate for the reason interest rates were only going to go up and it gave me certainty. Everyone including the mortgage broker tried to talk me out of it but I’m laughing now as no doubt they will fall much slower than they have risen but I am cautious

I understand raising interest rates to curb peoples discretionary spending, what I don't understand is how putting us into a recession is going to 'grow' the economy, which is something all the politicians seem very keen on ?

Also if we do end up in a recession, doesn't that inevitably leads to job losses/recruitment freezes, and I don't think everyone who has a mortgage is in a recession proof job ?

Pretty sure you should “spend your way out if a recession”. The Tories get everything wrong with our economy, yet people still believe they’re the only party you can trust with it.

I don't think they've factored in post lockdown fomo. The experience of being restricted for a lengthy period has had a big effect on some people. Typically when there's talk of a recession, we see people voluntarily cutting back, including people who don't necessarily have to but are worried. But we've just had an unpredecented experience, so we don't know whether previous behaviours will still apply.

Maybe your colleague should volunteer for a food bank, and have discussions there with people about the 'nice things' they should be giving up? What a blinkered view he's got. Of course there are people who feel entitled to luxury cars, holidays etc and some of those might people might need to have a rethink about priorities if they are struggling. But he's completely overlooking those who work hard in lower paid jobs and were already struggling to feed and clothe their families, never mind have nice things, before living costs began to rise