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 don’t rant or get pissy online much as invariably I represent just one viewpoint across a spectrum and everyone’s experience is valid. But can the ridiculously smug people posting here about having “known this would happen” and shaking their virtual heads darkly and tutting at “frivolous, over-reaching spendthrifts” just FUCK OFF.

Yes there are a proportion of people impacted who’ve been a bit over zealous in their mortgage size and that may or may not be attributed to wanting to be seen to have the big house, the better schools etc. But there’s a huge swathe of ordinary / average home owners, who got a middle of the road mortgage, have outgoings now they didn’t have at the time of taking out their mortgage, perhaps don’t find risk assessment as easy or have trusted brokers to advise them - rightly or wrongly. And now they have such huge increases in their monthly payments it’s going to effectively become so serious, it’s a life event for them. The lack of empathy from some people on here is frustrating.

The lack of empathy from some people on here is frustrating

I agree but it works both ways. Some people have no empathy towards older people who may have gone through significant struggles themselves in the past. The vitriol on MN towards older people has been astonishing in recent months. And almost as much is directed at people who own their homes outright. When people are faced with vitriol they tend to bat it right back.

Very fair point @nebulae

Yes I’ve noticed it too, particularly as an older person myself. There is a lot of ageism on Mumsnet unfortunately and a lot of stereotyping.

I can easily see how it will be an extra £500 a month for many households.
We only have a £106k mortgage and are massively undercommitted, but if our mortgage came off of its fix (which ends in May 2025) today, we'd have to pay an extra £300 a month.
We're not talking huge, silly mortgages here.

Good post

Diverting from the mortgage mud-slinging to get back to the OP's original question...

I'm certainly no economist but yes, I believe there is a lot else the govt could be doing to curb inflation. Raising the interest rate is an extremely blunt tool and not necessarily even the right one for the job in the UK's current situation. It comes down to what kind of inflation we believe we're experiencing - cost-push or demand-pull (see https://www.investopedia.com/articles/05/012005.asp)

Raising the interest rate is a crude way of dealing with demand-pull (where there is too much money sloshing around) by effectively impoverishing households. However IMHO we are in fact suffering more from cost-push inflation (caused by rising costs due to Brexit, food policy and energy policy omnishambles, labour shortages etc).

The remedy would be to fix the root cause - poor govt policy.

Agree with the lack of empathy for older people. When interest rates were very low, sub 1% on some savings account, there was little support for pensioners whose standard of living was impacted by having a tiny income from savings.

You are talking about a very very small number of people though, less than the top 1%. Not sure you can put inflation just on them though.

I’m still convinced that if everybody stopped using credit cards it would be a huge step in the right direction and we would all benefit.

And all those businesses collapse?

ShanghaiDiva · Today 14:51

Agree with the lack of empathy for older people. When interest rates were very low, sub 1% on some savings account, there was little support for pensioners whose standard of living was impacted by having a tiny income from savings.

The thing is though that while the income from the savings was low, it is still effectively free money. People would have had their actual savings to use if they needed to. And a lot of older people - depending on their age obviously - would have been able to use those low interest rates to pay off their mortgages whilst residing over huge house price growth. Also older people are statistically the wealthiest demographic at the same time as being the one given the largest amounts of hand outs.

This isn't their fault, and I don't actually begrudge them. I do, however resent the sneary attitude and the view that they should be insulated from all the pain that everyone else is having to live through. I'm also bored of hearing how everyone should have empathy because they lived through the 90s. While I'm sure it WAS shit at the time it isn't the same as facing the fear of homelessness NOW is it?

@Smellslikesummer

There have been a lot of cash purchases in the housing market in the past 18 months, enough to have an impact on inflation.

And then what happens? Businesses go bust all over the country, unemployment goes through the roof and we end up ten times worse than we started.

Here is an interesting paper from the LSE:

• There's a link between inequality and inflation
• Inflation favours the wealthy

It certainly feels to me like the UK has become a more unequal country. The gap between rich and poor has grown massively. A small fraction of people are rolling in money and able to buy million-pound homes in cash while the majority of ordinary folk are getting poorer by the day. -

Nobody is entitled to interest on savings. They are lucky to have had the opportunity to accumulate so much wealth in the first place.

I think that high interest rates on loans are a sin in almost all major religions. The banks are going to hell 😂

Whilst you think of this as a tax on wealth as ‘nobody is entitled to interest on savings’ - just think that through.

How do you think banks get rich - by charged interest and playing with peoples deposits. If there was less incentive to save there’d be even more demand; less deposits in banks and overall people saving is generally good for economy so a rainy day doesn’t become everyone needing to use the benefit system.

As with most things, sweeping rules are rarely so simple.

@Sallywallywoowoo
I’m insulated from the pain as I don’t have a mortgage and I have savings. I didn’t receive an inheritance or any parental help. I haven’t made money from buying a house in the 1990s and downsizing.
What exactly is it you want from people like me?

@ShanghaiDiva I want you to share the pain! Pure and simple. It should be spread across society rather than concentrated on a small percentage of households. If you have savings then you're already in a more privileged position than a lot of people, who are going to see their mortgage or rent increase by hundreds of pounds a month.
And before anyone says I'm being selfish. I'm actually not even really thinking about my own situation. I'm lucky enough to not be too worried because we bought our home in 2014. But I see how awful it is for people just 10 years younger than me.

We bought a cheap house in a cheap area so we could pay our mortgage off quickly and so that if interest rates rose we could still afford to pay our mortgage. Would be really shit if we then had to pay lots of money to help those with the same choices as us who chose a big house in an expensive area.

@Sallywallywoowoo
and how is the pain to be shared across society? as I said, what is it you want from me?

Well I've given some ideas up thread about taxes that I think should be changed.
So council tax bandings need to be changed. They are grossly unfair. Inheritance tax should be paid on a much higher amount of inheritance except if its going to a cohabiting partner.
NIC should be scrapped and tax bands increased to compensate so that everyone pays, including on capital gains.
Pension triple lock should be scrapped and pensions rise in line with public sector pay.
Over 60s benefits (except for pensions) should be means tested not just given to everyone. I mean I'm sure there's more that could be done but that would be a start.

@Tosire

As a taxpayer, I pay for other peoples' choices all the time. I didn't realise I could refuse to pay for something that doesn't benefit me.

Let's start with the state pension pyramid scheme - there's no way i'm going to get back what I pay into that!

I'd like to opt out of paying for NHS care for any preventable illness too.

I could go on and on and on.

Sure @Tosire but what about the people who also bought a "cheap" house in a cheap neighborhood but because they're younger FTB the "cheap" house actually wasn't cheap because of house price rises. Even if it was exactly the same as yours?

@ShanghaiDiva

Maybe an increase in CGT and VAT on luxury goods?