Inflation and interest rates

[Sallywallywoowoo]

The BOE keep raising rates to curb inflation. I understand that is the only thing that the BOE can actually do and so they've got no choice. But isn't there anything else the govt can do? It's genuinely scary seeing articles on the BBC how 1 million mortgage holders will see their payments increase by £500pm by 2026. Literally nobody I know could afford that. And it doesn't even include renters in that number. Presumably loads of them are in the same boat or worse. If their LL mortgage costs go up, then so will their rents.
It seems to me the financial burden could be spread more fairly. Anyone who owns outright isn't feeling the pain. And for the most part that group is likely to be the ones who could most afford it. Especially if they have a load of savings that they're now getting a nice high rate of interest on. Surely things COULD be done differently if the will was there?

I hope I am reading you wrong but are you indicating that if you have already paid off your mortgage, you should now take on an additional financial burden to help those still paying????

Er no obviously I'm not suggesting that! I meant that the tax system could maybe be re-jigged in some way rather than just raising interest rates again and again and again. I don't have any ideas as to how though which is what I was wondering.

Lol

Not sure it is fair to tax people more who have been diligent when taking out a mortgage, bought a smaller property and not overstretched themselves to bail out people who have mortgaged themselves to the hilt on cheap credit.
It's definitely a problem, but I do not agree that this is the solution.

Yes, apparently only about one third of people have a mortgage, so it's a pretty blunt / limited tool.

Who's going to be paying £500pm more?

Surely that depends on personal circumstances, LTV and what rate you're on.

Only a third of homes in the UK are mortgaged, and out of those 60-70 percent are on fixed deals, so the rate rises are directly affecting only a small portion of mortgage payers. Also, rates can fall, if as predicted they peak at 7% early next year then a recession will happen. The fallout from that will come this time next year, during the next GE campagin. I suspect the powers that be will then take steps to mitigate the damage.

In any case, domestic interest rates can't influence external causation, the UK can't make imported goods cheaper. Our market is too small to have real influence on producers bottom line.

Savers already pay tax on savings interest.

Are you suggesting an additional tax, if so for who and how would the money raised help curb inflation?

increasing interest rates impacts everyone who needs credit it isn't just a mortgage issue.

The £500 per month is what the BBC is reporting. Apparently 1 million mortgage holders will be paying that much more by 2026.
And yes with only 1/3 of homes being mortgaged it does seem, to me at least, pretty unfair that it's only those households who are having to bear the brunt of curving inflation. Chances are if you don't hold a mortgage (or rent) you're wealthier and could afford to be paying more - I'm not sure how it could be done though. And to the PP who describerld the people who will suffer as having "mortgaged themselves to the hilt" seriously. Have you seen housing costs vs salary levels recently? Most people have no choice!

But savings rates are lower than inflation by a lot, so in effect I'm losing money every month on my savings, maybe people without savings could boost mine a little each month?

But it's not the same is it? You're not actually losing money. You're just not making as much money.

I'm not sure - people with savings getting less interest than inflation are losing money, aren't they?

You are loosing money in as much as the buying power of your savings is not keeping up with inflation.
Although the value of your savings is increasing, it is not keeping up with inflation.

Interest rates are always lower than inflation though? If you want to beat inflation then your money shouldn't be in a cash savings account! Stick it in equities and try your luck?

Literally the meaning of inflation is that people have less buying power.

This - plus these days most are on fixed rates so there is a huge delay in having any effect.

74 per cent of homeowner mortgages are fixed - according to https://www.ukfinance.org.uk/news-and-insight/blogs/how-the-bank-rate-affects-mortgage-rates

Though I did read somewhere that an usually high number of fixed rates come to an end this summer.

The tax burden being going up anyway

https://www.ii.co.uk/analysis-commentary/uk-tax-burden-highest-record-ii527398#:~:text=And%20depressingly%20Britain's%20tax%20bill,point%20of%2028.3%25%20in%201993.

Interest rates alone are a blunt tool and the increases haven't worked as well as the BoE hoped they would.

The govt could certainly have done more to deal with this. There is too much money in the economy but they thought it would be a good idea to write a blank cheque to energy companies last year and give £400 to households that didn't really need it. That was a mistake.

Support from the govt should have been much more targeted and some taxes should probably have been increased a year ago to cool the economy down.

Instead of seeing some controllable pain that could be fairly distributed, we're likely to see some people lose a lot (houses, jobs, businesses), while plenty of others get on just fine.

Both the govt and the BoE have really fucked up.

Couldn't the govt do anything else to curb inflation? Yes, they could use fiscal policy instead of/as well as the Bank's monetary policy approach.

That means they could raise taxes or lower govt expenditure. So, which taxes would you like to pay more of? And which public services would you like to see cut?

Anyone who mentions prices and incomes policies gets a fail, and the 1970s would like a word with you...

I think the government should put VAT up to 50% or even higher. There’s a lot of people with a lot of money sloshing around, we need to stop that spending. People can’t stop buying food and energy and have to live in houses, so there’s no point in making those things more expensive. Make non essentials much more expensive and people will stop buying them.

A lot of people took out a large mortgages to get that bigger house, on the basis that they could afford the repayments based on interest rates at the time, and didn't factor in potential rate increases down the line.
Clearly no one expected rates to increase as fast as they are, but for some to not factor in any future rate increases is poor planning on their part.

Do people seriously think that higher interest rates only have a negative impact on people remortgaging?

Business have debts too. Higher interest rates will affect the economy and could lead to people losing their jobs.

Increases in VAT and/or council tax would pull money out of the economy and spread the burden more fairly

Good post

...and make money available for public spending rather than handing it over the the banks.

I’m terrified of the rate increases. Our fixed rate mortgage runs out next year. We live in the south, have a large mortgage because house prices are crazy and have two in nursery. We cannot afford an extra £500 a month. I work full time, as does my DH. Can’t up our hours. I’ve cut all activities. It’s causing us sleepless nights. We’re not extravagant, have no real luxuries.

But is it fair that people who have had to take out a mortgage to buy a home should shoulder the burden of fighting inflation, while those who have had their houses bought via bank of mum and dad, or inheritance, don't?

The problem with increasing interest rates is that it disproportionately affects the young, and least well off.