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?

This is also the case in the USA.

@Sallywallywoowoo
I think your wording is a little muddled re inheritance tax. Tax is paid on a higher amount of inheritance…do you mean the tax rate should be higher than 40%? The nil rate banding hasn’t changed since 2009 so more and more people are already affected by this tax.
capital gains tax allowance was halved this year so again more tax will be paid.
I do support means testing benefits such as attendance allowance. The form already runs to 40 pages so collecting income data could be incorporated.

Cgt allowance has been halved.
increase in vat on luxury goods…seems fair, depends how you define luxury goods.

It's not the same as those people who chose large houses in expensive areas will be accumulating massive profits. They will be making a fortune out of their properties eventually so they should be the ones to pay the interest on the money THEY borrow. Other people should not be paying for them to make money on property especially not those who have bought small houses in cheap areas who will not be making much if any profit or renters and who will never make any money from property. Otherwise everyone would just buy an expensive house knowing others will pay and they will accept the riches when they sell.

I'm a pensioner, I don't own anything outright. I'm paying full SH rent every month. Why do you think my savings should be raided for your asset?

You chose to buy a home, so you need to pay for it.🙄

No I don't mean increasing the tax rate on inheritance (except to include the increase due to removing NIC) but it should have a lower amount that is tax free IMO. I believe it's £375,000 that can be passed on without paying tax no matter what, and can be up to £1 million if passed to direct descendants after the 2nd parent dies, if the first didn't use their allowance. That's £1million tax free. While another family is worrying about losing their 2 bed semi because they can't afford the mortgage increase due to rate rises. Doesn't seem fair or even sensible to me

@Zebedee55 where have I suggested raiding your savings? And I'm not even talking about my asset particularly. It's people who have bought a property in the last couple of years who are most screwed.

Also @Zebedee55 if you read my post you'll see that I am also concerned about renters anyway! Lucky you, that you have SH property. Most people don't as there aren't enough to go around

No, I agree - there should be more SH. I started in the 70's, and have continued.

But, it's pointless with this "age war" going on, where young people think they are the only ones that have ever suffered, and blaming pensioners for it all!

Blame governments.🙄

I agree. And I'm not actually "blaming" anyone other than the government. I just feel everyone should be having to shoulder the responsibility, rather than just a few. (Oh and fyi I'm not young 😂)

You sound angry with people who have SH now, as well as older people!

As @Zebedee55 says, the age war is pointless. What's the point in us all blaming each other when it's government policy that's to blame?

It’s £325K and has been since 2009.
I don’t really understand your logic and you need to check your facts. The inheritance threshold is frozen at the time the spouse dies so in my case when my father died it was £231k not the current £325k which clearly affects the amount of the estate which is tax free when my mother dies.
So I should pay more tax because another family is struggling with their mortgage? Where does this logic end? Nobody should be allowed to earn a six figure salary because someone else can’t pay their mortgage? What if this person with a mortgage spent their disposable income on luxury goods and holidays when rates were 0.99%. So they still ‘deserve ‘ a handout. What about pensioners without the triple lock (as you want to remove that) who cannot afford to put the heating on? Are they less worthy?

I don’t have a lot of good things to say about the govt and Rishi but when I read these threads I can see why he thinks everyone should do maths until they’re 18.

Philosophically (and to a small degree financially) whether IHT should be reduced etc. is totally irrelevant to the issue and your question OP which is INFLATION in the short-term. It would raise a fraction of extra taxes relatively and in any case will not sufficiently reduce demand or increase supply THINGS THAT IMPACT INFLATION. What is so hard about this to understand? people have repeatedly said what the issues are and it’s not having a go at anyone who bought, or older people or anyone else FFS.

If increasing the base rate had the desired effect why do the BoE need to keep putting it up? Clue - because it is a blunt tool that doesn’t work to curb the nature inflation we have in the UK.

I think the inflation might get worse if mortgage rates are higher. In my experience and my own life it’s just making us more aggressively determined to get pay rises to deal with the higher costs.

It’s not strictly true to say the BOE can’t do anything else, they can do Quantitive Tightening by selling bonds, which they actually have been doing to some extent. However, the new result is the same as selling bonds also increases innterest rates.

That said, the government could choose to increase Income Tax which would hit everyone, or increase VAT which would hit those who bought stuff most.

The Tories aren’t likely to do either, as they are the party of lower taxation and spending cuts. It is more likely that Labour would increase taxation.

For example in 1985 the Personal Allowance (zero income tax band) was proportionally lower than now and the low rate of income tax was 30%

So would you rather have mortgages £500 a month higher or £500 less take home pay due to income tax rises?

I’d prefer the latter as it would balance the countries books more and give less profit to the banks. Sunak is actually talking about cuttting the low income tax band to 19% which is bonkers (but would actually be good for me).

The crap started with Thatcher.

Ner result, not new.

Doh! Net result.

If increasing the base rate had the desired effect why do the BoE need to keep putting it up?

Because with people coming off fixes at different times the rises take longer to work through. The last time raising rates was used to tackle inflation everyone was on a variable mortgage and the effect was most immediate. Obviously people reducing credit card use and loan applications will cut in straight away.

my mortgage is paid off and I’m certainly not in a position to feel the pain again with a mortgage and why should I? Are you suggesting I pay more tax even though I’m on a low wage, illness that means I can’t work longer than 30hrs a week, I can’t afford to heat my home or splurge on anything. People who have paid off their mortgage aren’t always well off, I have no savings.

A lot of those mortgage-free people will be old farts like me, who paid crippling interest rates in the '80s and '90s. I know that mortgages were smaller then, but incomes were lower too, and interest rates were well into double figures.

Many of us had families in social housing, so no inheritance for us. The few grand I inherited wouldn't have paid for a decent 2nd hand car, never mind the deposit on a house. Most of my friends and colleagues are/were in the same position.

I have very similar recollections, @Lincslady53 . The day they announced that big rise, colleagues kept coming in to my office asking me to work out how much more it would cost them (I worked with a bunch of innumerates!).

One woman completely broke down. They had a big mortgage, because they'd released equity to start a business a few years earlier, when he was made redundant. They'd tried to sell and downsize, but at that time there were loads of people in negative equity, interest rates were high, there were loads of cheap repossessed properties on the market and they just couldn't get a price for it that would have made it feasible.

I know loads of people who lost their homes in those few years. Some of them are still renting now, and their pensions are mostly going on rent.

Well even accounting for that the point is overall it doesn’t work well as a measure to tackle to nature of inflation we have.

I support the abolition of NIC, too. It means that wealthy pensioners with good pension incomes would pay more, and I think that's fair.

It seems very wrong to me that a pensioner with pension income of £30k a year gets to keep more of their income than someone who works for £30k a year. If the existing tax thresholds were maintained, or even raised slightly, that would protect poorer pensioners. At the moment, someone with less than £200 a month private pension + SRP will be paying tax on a bit of it.

The government can do things other than interest rates to reduce the inflation rate. There are things subject to regulation such as water charges, that could be reduced. Then there could be laws about rip-off charges, which I think at least to begin with could reduce the growth in inflation. A final suggestion would be to restrict the gap between savings and mortgage rates, which I think would lead to lower increases in mortgage rates.

A £400k house might seem ordinary to you but actually that’s way above average. Any taxing that just affects people who are cash buyers of million pound properties won’t curb inflation or raise money as very very few families are in that position.

interest rates work by generally discouraging borrowing and increasing saving. It’s not all about mortgages.