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?

While no-one knows what will actually happen to UK economy or interest rates current predictions have :

The latest predictions from economists are that UK Interest rates are now expected to peak at 6.5% in the first quarter of 2024

https://www.xtb.com/en/education/uk-interest-rates-projections-in-the-next-5-years#:~:text=After%20hitting%20a%20new%20high,3.5%25%20between%202025%20and%202027.

So fingers crossed things will improve in next 2 years.

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.

Absolutely this. We were in an historic low interest rate environment for a long time. This was the time to "make hay" and put every spare penny towards overpayments, not borrow 95% LTV and max out your borrowing just because you could.

Sadly there is going to be a lot of fall out for some people and the answer isn't simply penalising people who are mortgage free. Yes that category includes myself, in a modest property and I chose to remain here rather than borrow more and move into a larger house like so many others during the housing boom.

Jesus. So smug. It's easy to judge people with big mortgages isn't it? You do realise a lot of them will be young families who actually have teeny tiny homes that still cost about 8x their salaries because that's what houses cost now. How nice for you that you happen to have been of an age where you could benefit from rising house prices and cheap money.
And yeah those people didn't have to buy a property but for the most part they would have been paying more to rent!

@PepperJacksBestHo

But FTB couldn't 'make hay', because they had to save for a deposit during a time of historic low interest rates and buy when prices were high (or spend their lives renting).

I can't believe so many people in this country were so stupid that they didn't just think about being born a decade or two earlier, or into wealthier families. 🙄🙄🙄

@wutheringkites yep. Just waiting for someone to mention avocados!

What a load of utter nonsense. Low interest rates weren't 'temporary' at all. We had them for 15 years. Yes, older buyers, who bought 15+ years ago could have taken advantage of low interest rates and paid down their mortgage, but this doesn't apply to younger buyers who had no choice but to buy while interest rates were low. It meant that house prices rocketed.

Not utter nonsense in my situation though. Was a FTB, got onto the ladder, then as my career and earnings progressed as I was able to pay more off each month gradually reducing the balance. Whilst I knew interest rates were only going to go up. The base rate couldn't exactly have got lower.
Yes, my house price has rocketed. But I'm staying put rather than upgrade and borrow more.

No, but there have been support schemes available. Help to buy, LISAs and shared ownership for example. Also making sure you can afford your repayments now and in the future should circumstances change - that's the main thing.
On another point I'm not sure why renting is such a dirty word, the UK is so hung up on ownership, for people with a secure / housing association tenancy it may be the best option at the time. Although I know some landlords leave a lot to be desired.

@PepperJacksBestHo

Yes but you obviously bought your house a long time ago. Congratulations on being born a decade or two earlier 🙄

It's luck, stop pretending that it's some kind of personal achievement.

The smugness of here from ALOT of people is so sad. Good for you. No mortgage or a small one. Great. So you didn’t have to pay childcare at todays rates, you could have a single income, it must have been a lovely time. Not so now. It’s hugely unfair of those of us who have done all this because WE HAD NO CHOICE. Be kind.

"obviously" bought a long time ago? How so?
Nice to assume I'm some sort of retiree with heaps of cash and a semi detached I bought in the 70s for £3k.
I bought in 2011 and I'm almost mid-thirties now with two small children. So what if I'm proud of what I have achieved. Knock me down all you like.

To answer your question - if the government were serious about curbing inflation they would increase the rate of tax. But they will not do that as it’s political suicide for any party.

Instead they can hide behind the BoE increasing interest rates.

@PepperJacksBestHo

Why is it always homeowners who suggest that renting is a good option?

For what it's worth, my mortgage payment is currently only 66% of what we're were paying on rent before buying so I'm actually perfectly used to going without to service a mortgage - at least it will be my own this time.

Exactly. I just went and checked- the savings account I saved for my deposit in had an interest rate of 1%!! Bought in Jan 22.

Our interest rate is currently 1.2%, there’s now way it will be back down to that in two years time. We’ll likely be selling up and downsizing

@MsMoody

We bought in Dec 21 and I remember reading about the possibility of negative interest rates at the time. 🙃

Also the government could review our policy on immigration. The UK (and globally) there is high demand relative to supply, plus the UK has a productivity issue. We need more people or a step change in productivity via technology (AI), these will ease supply side issues and tax rises would curb demand.

Has the government done any of that? Big fat no.

@PepperJacksBestHo

You don't think that 2011 was a long time ago?!

No wonder that you've paid your mortgage off - you've benefited from more than a decade of low interest rates AND much lower house prices, and now your berating others who don't get that same opportunity?

It's not the people who bought 10 plus years ago who are going to be hit hardest by this.

In the early 90s, we had a mortgage and also a business loan on our new business, when interest rates shot up. I remember the day when they hit 15%, I was in our shop, and it was announced on the radio news. A customer just burst into tears about how she would not be able to afford her mortgage payments. Fortunately, we had a 10 year fix on our mortgage at 'just' 9%, which was a bargain compared to rates over the previous few years, but our business loan payments soared and our customers stopped buying. A horrible time and I feel for anyone facing similar issues today. The rise had been due to money market speculation as we prepared to enter the Euro, but this increase put paid to that, the UK pulled out of the exchange rate mechanism, and interest rates dropped rapidly. A couple of years later, we paid to get out of our 9% mortgage, and rates have not been anywhere near that since. Hopefully, rates will start to drop soon, I suppose one benefit may be a reduction in house prices, which will help anyone looking to buy.

Taxpayers should not have to subsidise those with mortgages! Firstly, it is a minority of homes which have mortgages, secondly, mortgage holders have not always borne in mind that interest rates could and would rise after being so abnormally low for such a long time. I do agree that some taxation rules which have not kept up with inflation etc need to change, such as stamp duty bands, with much higher rates for second homes/BTL/holiday lets, and inheritance tax etc, . Also higher VAT on luxury items.

The interest rate rises are effectively the government intervention. It’s on purpose so it wouldn’t make sense for the government to then try to help people, it’s raised the rates to stop over spending.

Anyone taking out a mortgage should also be very aware of what payments would be should rates increase and have a plan…

Both the above posts can’t be true.

The BoE is independent of the government so the government has done zero (although I agree this is on purpose).

If it’s then the case that most houses don’t have mortgages (I don’t know), interest rates can’t then be used as a tool to curb demand broadly because it’s only impacting a small number of people.

We spent 10 years renting saving a deposit and bought not long before financial crash - we fixed the rate to watch them drop like a stone then we lost our jobs and had to pay mortgage from savings - and house prices in our area crashed and still hadn't recovered by time we sold. We came a hair breath of losing 10 years saving - we were terrified.

Took time and moving to improve our financial circumstances and as soon as we could we started overpaying - so we weren't as vulnerable again despite "advice" to do other things with the money.

We've had the time to get ourselves into a better financial situation though we are starting to struggle as everything goes up in price seemingly every month.

A customer just burst into tears about how she would not be able to afford her mortgage payments.

I was a teen and remember my parents fears - they also had job worries - Dad being in a badly hit industry.

Private renting in this country isn't a great experience - we bought when we did for stability as eldest child was near to school age - it's much worse now as are house prices.

At least there are some considerations being made this time - but even so it will be people just on the housing ladder often with young kids who will be worse affected.

I suspect majority of the stress would be felt by people who bought smaller properties because they couldn't afford more. or in the commuter belt of cities where houses were more affordable. Further up the ladder, the purchases tend to be funded by equity or inheritance (thats the case in London where i am).

My increased mortgage payment is not funded by prudence but through salary rises. Also they mainly looked at DH's income when we were buying our flat as I was still on my visa. I don't have student loan and am on the cusp of higher rate tax so now my take home isn't that dissimiliar to DH even though he earns more than £20k more.