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 though banks stress tested to fair few % point above current rate - it's certainly been given as a reason why there's been some resilience in housing market.

The problem is everything else has gone up as well - food inflation been really high for 12 months now.

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

Yes and similarly many have face rising prices as well - soem sectors particularly hit with fuel and food costs rises.

The current unemployment rate is officially 4.0% - though inactivity rates are higher but yes that will likely grow as business fail.

It would, but my council are so fucking wasteful (and expensive) raising council tax higher would go down like a bucket of cold sick.

To sell it to the public local and central gvt would need to demonstrate that increased tax burden would be put to good use and I'm not sure I trust either to do that.

@Londongent

Hmmm. We are in this situation because of the money the govt printed during Covid. Do you remember 'we're all in this together'?

You could equally argue that we should have let people and businesses fend for themselves during the pandemic. Or is govt intervention ok when it benefits you but not ok if it costs you something?

I'm not very knowledgeable about economics but isn't stopping people from spending, especially on services also bad for the economy? Doesn't this kill off a lot of businesses?

@CranfordScones I'd like to see council tax made more fair - at the moment millionaires are paying the same as someone with a much smaller property. I'd also like to see inheritance tax on a larger amount of the estate (unless being passed to a spouse / long term co-habiting partner) I'd also like to see more of the benefits that go to over 60s looked at. Things like free prescriptions, cold weather payments, triple lock pension. Obviously some people need these, but many don't.

The problem of not increasing rates when other countries are doing the same is that it devalues the pound and makes all our imports more expensive and increases inflation further for everyone.
I'm not revelling in this. I have a mortgage and had no help from my parents and I took out a mortgage with a low interest rate that lasts until 2025.
I could have bought a bigger house based on rates at the time, but that would make it unaffordable when I next come to remortgage.
Is it fair that I would be expected to have my tax increased further to help other people who didn't factor in potential rate rises? I'm talking about people who went for the biggest house they could find, maxing out mortgage repayments against their income on the lowest ever historical rate.

It is going to cost me when I remortgage. I'm just saying that it shouldn't cost me more to help out people who took out the biggest mortgage they possibly could to get the biggest house they could without factoring in a potential interest rate increase.

Very few people will be getting repossessed. They might trash their credit score but so long as you stay in contact with lender the new consumer duty regs are now in force and none of the mainstream lenders are going to want to be the one the FCA take action over.

@Londongent

But this isn't just about interest rates, the BoE are aiming to dip the country into a controlled recession as well.

That means households will be faced with job loss AND higher mortgage payments.

If you turn out to to be one of those households, you might feel just a tad hard done by, and rightfully so.

You’re someone who could possibly benefit from the new package of help available? It’s not much I know but apparently from August, Lenders will be offering the opportunity to extend the term or switch to Interest only for 6 months just by clicking a button on your online mortgage account.

At no point am I saying this is a good thing

That’s the trouble.

Everyone wants “free” money or good services when it benefits them. But we aren’t so happy paying for it for other people in society.

Is it fair that I would be expected to have my tax increased further to help other people who didn't factor in potential rate rises? I'm talking about people who went for the biggest house they could find, maxing out mortgage repayments against their income on the lowest ever historical rate.

@Londongent

I think that these people are relatively few. In most cases, people have just bought modest homes, at very high prices, because they've had no other choice. Their only crime is being born at the wrong time.

@Londongent

No, but you seem to have the knee jerk reaction that increasing taxes would have been an unfair way to deal with this.

We are in this situation because the govt printed too much money. The universal energy payment last year was stupid and unnecessary- just not paying that to households that didn't need it would have helped.

Some targeted tax increases last year would have been prudent. Unpopular, but prudent.

Banks aren’t yet offering high interest rates on savings accounts, they are just starting too though (Lloyds now offering 5%). Nothing will slow down until people stop spending and start saving, there’s little incentive though and people can’t afford to save why COL is so high.

It’s a mess and I wish I could immigrate.

https://www.gov.uk/government/news/chancellor-agrees-new-support-measures-for-mortgage-holders#:~:text=A%20new%20agreement%20between%20lenders,months%2C%20if%20they%20choose%20to.

The lenders – which cover over 75% of the market - agreed to a new mortgage charter providing support residential mortgage customers. These are:

• Anyone worried about their mortgage repayments can call their lender for information and support, without any impact on their credit score and we would encourage you to contact your bank who are there to help.
• Customers won’t be forced to have their homes repossessed within 12 months from their first missed payment.
• Customers approaching the end of a fixed rate deal will be offered the chance to lock in a deal up to six months ahead. They will also be able to apply for a better deal right up until their new term starts, if one is available.
• A new agreement between lenders, the FCA and the government permitting customers to switch to an interest-only mortgage for six months, or extend their mortgage term to reduce their monthly payments and switch back to their original term within the first six months, if they choose to. Both options can be taken without a new affordability check or affecting their credit score.
• Support for customers who are up-to-date with payments to switch to a new mortgage deal at the end of their existing fixed rate deal without another affordability check.
• Providing well-timed information to help customers plan ahead should their current rate be due to end.
• Offer tailored support for anyone struggling and deploy highly trained staff to help customers. This could mean extending their term to reduce their payments, offering a switch to interest only payments, but also a range of other options like a temporary payment deferral or part interest-part repayment. The right option will depend on the customer’s circumstances.

Extending the term while childcare costs are high might help - depends on the figures.

We should be okay up to 7% beyond that and it would really hurt - I was hoping interest rates come down by 2025 when our fixed term runs out.

@Twiglets1

I find it weird that no one questions the amount of money handed over (with no checks) through the bounce back loan scheme, but they would happily see a family lose their home 'cos personal responsibility'. 🙄🙄🙄

People are going to lost their homes or be forced to move. If interest rates hit 9% then our mortgage will increase from under £900 to over £2000 p/m

That’s two years away and it’s making me panic

I found it weird that the furlough scheme went on so long. I supported it at first but not after everyone had the opportunity to be fully vaccinated.

Maybe I am biased because I was a key worker who worked throughout the Covid crisis. But the furlough scheme seemed to go on too long and of course people chose not to hurry back to work while there was free money available. I wouldn’t have either!

YABU

No one needs to have a £million mortgage - there are always options. No one HAS to live in an expensive area. Areas get expensive because they are so popular and pleasant to live in that demand outstrips supply and prices go up.

YABU to say that "no one" can afford a £500pm increase - obviously most people can't, but while there are people paying at least £1400 per child per month for private school fees, and plenty of people saying elsewhere on mumsnet that "I could afford private school but choose not to" there are clearly plenty of people who can easily shoulder that kind of increase - you may not realise quite how rich some people are.

What the government should do is invest in building houses and stimulating growth in valuable and rewarding employment businesses in areas which haven't experienced such house-price inflation, get people moving out of those hotspots to cheaper areas (including making sure there are jobs to move to) and creating a thriving and growing economy that works for the whole country not just the wealthy hotspots.

And absolutely no to subsidising the people who have over-borrowed and have created financial trouble for themselves.

We have been told for YEARS that the low interest rates are temporary, that they will be going up sooner or later, and that we should make sure that our borrowing will be robust in the event of sharp interest rate rises. This is not news. 6 years ago when rearranging my mortgage after a previous deal ended, I put plans in place for how we would cope with a jump to 6%, because that was the sensible thing to do, and there were plenty of articles in financial pages saying that interest rises would happen sooner or later. We didn't move to a larger house, despite the banks being willing to lend us enough to do so, because I knew that if we did the inevitable hike in interest rates would be more difficult to deal with. I'm glad I did that obviously, though this house is getting pretty cramped now DC in teenage years. But this is a free country, people are allowed to make their own decisions and take risks, and it was fair and reasonable for other people to make their own decisions and gamble their future financial stability rather than being cautious and choosing lower-risk options. Whilst that's their right, it is also their responsibility to shoulder the consequences and it would be totally wrong for those who took a lower risk decision to insulate the risk-takers from the consequences of their decisions. Which is what would happen with any of these "other ways" you allude to.

They aren't going to be left homeless, they can sell up and still have some equity, and can make their housing arrangements according to their actual means rather than aspirationally commiting to pay for a lifestyle they can't afford and then wanting other people to bail them out when it goes wrong.

@Twiglets1

Yeah, I agree. We both worked right through Covid and bought our first home in 2021 after a decade of saving. I find the 'I'm alright Jack' attitude to distressed mortgage holders unpleasant given how much free money so many have had.

OP - I agree that the distributional impact of this is unfair, and disproportionately penalises a demographic - particularly families with young kids who are more likely to have big mortgages - who are not the primary cause of inflationary pressure.

There are other ways the government could also ease inflationary pressure. The most obvious is to scrap the triple-lock and instead increase pensions in line with public sector pay. It is nonsensical to claim that nurses and teachers can’t get a 6% pay rise, when instead the demographic with the most disposable income is given 10% last year and 8% next year. That is clearly inflationary.

The burden should be shared and not again fall on young families.

Please don’t panic about things 2 years away. I watched the Martin Lewis show on ITV yesterday and he was basically forecasting (no guarantees of course but he has access to lots of financial information) that rates will start to reduce in about 1 years time. Though not back down to the extremely low rates we have been enjoying the last few years.

So do I.

Personally I feel really sorry for distressed mortgage holders and I know I’m just lucky I’m not in that boat due to timing.

Yep, people happily took furlough and covid grants where there was no scrutiny or consideration of "need" - just look at how savings levels jumped up during 2020 and 2021. Huge numbers of people saving money that was being thrown at them and them not being able to spend it! All that money is now free-flowing into the economy driving inflation. Trouble is, generally, those who benefitted from the covid monies aren't necessarily the ones being hit by interest rate hikes.

Personally, I think furlough/grants etc should have been on a "loan" basis, maybe like student loans, where you pay back a small percentage of extra "tax" on your income over the next 20/30/40 years, and then written off. So basically those who benefitted, are paying at least some of it back. Those who didn't benefit, just carry on as normal.

Either that, or put 1p or 2p on basic rate income tax so all taxpayers pay a little more over many years which pays a bit of the debt and also takes a bit of money out of the economy, thus maybe reducing the demand inflation.