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 think a lot of people are going to be in the same or similar position. My MiL told me last week that years ago she went on to interest only for 3 months when FiL lost his job. So I think many people might have to do that just in the short term and when rates go Inflation coming down is crucial. Wage rises fuel inflation but with COL so high we all need wages increased so inflation goes up again. It's a horrible spiral.

This is the thing, none of these suggestions are going to be implemented, and even if they were it isn't going to be in time to avert the rises in mortgage costs that people are facing right now.
Some people will be able to afford mortgage rises some may not.
When it comes to remortgaging you have to think whether a fix or tracker would be better depending on your risk attitude. Extending the term or going on interest only are strategies that may work to reduce the pain in the short term.

My question was directed at @wutheringkites and I would be interested in their answer, if they want to give one.

"Savers already pay tax on savings interest."

Up to a certain amount is tax free (which is why Isas are no longer much use to ordinary savers).

but with rates going up, you would now start paying tax on savings even if you only had about £20k squirrelled away. So although ISAs haven't been much use in the last decade, they are finally becoming useful again.

"but with rates going up, you would now start paying tax on savings even if you only had about £20k squirrelled away. "

I didn't know that. As a basic rate tax payer you'd only be taxed on interest over 1k a year. What are the interest rates on savings accounts in the UK now? (Where I live they are mostly still 0).

I'm getting 3.8% on an easy access savings account. You can get higher especially if you don't need easy access.

Easy access account you can get about 4.45% in the top paying one
One year fix you can get 6.05%
So ISAs are suddenly useful again for some. :)
Of course the top one-year ISA is less than the regular accounts.
but I've just checked and there is one for 5.5%
Shame I already locked mine away at 4% until March!

1 year fix at 6.2% and looking at fixed rates for one and two years it suggests rates will not start coming down for two years.

Wonder how HMRC and individuals will deal with all these extra tax returns needed because people will be over the £1k in interest. Would imagine it will increase self assessments by big numbers.

As far as I’m aware, HMRC already know what your interest payments are (presumably they get returns from the banks) and would adjust your tax code accordingly. So you would only get a self assessment tax return if it took you over £100k. I might be wrong, but this seems to have happened to me in previous years.

It used to be that tax was taken off before you go tht emoney and then you had to claim it back if you earnt below the personal allowance. I'm not sure why or when they changed it around (perhaps when they bought the £1000 limit in?) but yes if that's the case then it does seem that it would need more people to fill in more paperwork.

ah, that's interesting.

It used to be deducted at source and non taxpayers had to claim it back. That would be sensible as it will mostly be such tiny amounts nobody would bother.

I've shared on previous threads that the rising interest rates are causing DH and I to do exactly the things that worsen inflation! Many others will be following the same route as us.
Because we know that our mortgage comes off of its fix in May 2025, we're spending on all big jobs that we want done to the house, garden and our vehicles now. We're also having some really nice holidays and buying any clothes and so on that we could do with. (And of course we're also continuing to save).
I've also pushed for a couple of promotions in quick succession, which has seen my salary increase by 35% in just 5 months.

Whilst I feel sorry for those with high mortgages who will be most affected there are pensioners who have been relying on savings for the last decade who have been shafted by the low interest rate regime the government have been pursuing. We have paid off our mortgage but at one point we were paying 15% interest rates so 5-6% does not seem so bad. Hopefully this will bring property prices down so they are more in line with salaries.

Mortgage holders have been benefiting from low rates for the last 15 years so maybe expecting that to continue forever is a bit ambitious - some people might say greedy.

Now it is time for savers to benefit instead. They have had to put up with low savings rates for those 15 years.

Yes, I'm sure lots of people will be doing just what you've done and getting themselves a 35% salary increase.

And surely for most people knowing they are coming off a fix in 2025 they would be saving up their money so they can either pay down the mortgage or at least cover the increases in 2025, rather than spending it on anything they can think of? If you know you have a massive increase in your monthly bills coming up, I'm not sure many people would be thinking "so that means we'd better spend lots more money now, because it will be tight soon"

@MadameameBeans not necessarily we have spent a fortune on our house which has increased its value so puts us in a lower LTV which = a lower rate. We can afford it if the rate goes up (we have 3.5 years left on our fix) but it will likely be covered by DHs promotion once he finishes his current qualification. I'm not worried about it more annoyed we are being forced down this route as I don't believe this inflation is controllable more needs to run its course.

but surely values are going down over the next couple of years.
Doesn't matter how much people spend on their houses if other people can't afford to buy them (I appreciate you aren't selling) but at current mortgage rates people aren't able to borrow as much, so wont be offering as much on houses they want to buy.
So won't that just bring the LTV back up?

I have to admit I'm in favour of baserate rises for purely selfish reasons.
every 1% they go up is an extra £4500 a year in the savings account.
but I'm not greedy, if they get up to 8% I'll lock it in for a 3-year fix and then hope for everyone else's sake they rapidly fall back again!

I've sold my investments and paid off a chunk of the mortgage recently. We massively undercommited on our mortgage, so can afford the increase in payments. But it will sting to pay them.
So I'd rather get the expensive welding done on our campervan, put new bathrooms into our 80s refurb, and sort our garden now. We've also just had double glazing installed. Likewise, I'd rather do our bucket list holiday, that we thought might come further down the line, next Spring while our outgoings are so low.
Not lots, but some, people will be approaching the current situation along similar lines.
The semantics are irrelevant though. My point was, interest rises are a blunt tool and may not achieve what the government and BoE is intending (for a while anyway).

I am no economic expert, but I think it would be fairer if fixed rate mortgages were abolished and everyone was on the tracker rate. At the moment, those on trackers and those unlucky enough to have their fixed rate up for renewal are going to be the ones 'punished' until things become more stable.

It’s also why the impact on of rate rises on inflation are taking longer to work through. It does seem massively unfair that the pain is shared out so disproportionately.

*GasPanic · Today 15:33
Mortgage holders have been benefiting from low rates for the last 15 years so maybe expecting that to continue forever is a bit ambitious - some people might say greedy.

Now it is time for savers to benefit instead. They have had to put up with low savings rates for those 15 years.*

seriously? wanting to ensure you can pay your mortgage or rent and not lose your HOME isn't greedy.

Some people might call the PPs discussing where they can put their savings to get the most money back in interest as greedy though