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 am. Going from 2.3% to a tracker mortgage. It’s just under £500 more pcm.

Well you are lending the banks money so why shouldn't people expect interest on their savings?
FWIW, I am not against raising taxes to reduce inflation, I think the way that the original question was posed as to help mortgage owners specifically is what I was against.
The government really should be closing the many tax loopholes that still exist, hopefully the increase of corporation tax to 25% should help too.

The main issue is that (a) the Bank of England's inflation forecasts were woefully wrong and (b) they didn't raise interest rates quickly enough.

Whereas the Fed were ahead of the curve and inflation in the US isn't far off their 2% target now.

This means more pain in the U.K. which could have been partly avoided at least.

What do you mean 'free money'? I'm presuming you mean interest paid on savings is free money.

I believe you've previously posted that you bought your house in 2014? Will you be selling it for the amount you paid for it? Or is the money you will eventually make on it due to ridiculous hpi somehow earned money and not free? I somehow don't think you will!

I don't own a house but I do have a lot of money in various savings accounts. I've worked bloody hard to accumulate my savings over many years! I made the decision to put my money into savings, and you made a decision to put your money into a house! Yet me expecting interest on my savings is morally free money but you expecting hpi on your house isnt?

I don't expect hpi (whatever that is) not did I say that savings shouldn't get interest paid on them, just that since it is free money, moaning that it isn't high enough is ridiculous. So basically all your claims about what I said are bollocks. Well done

a tracker? But rates are going up at least twice more before Christmas, so won't that be even more than £500 more pcm by next year?

It's not free money, it's compensation for the opportunity cost of not using that money elsewhere.

Interest rates are also way below the inflation rate so you're losing money in real terms. But the 0.25% base rate was an anomaly, not within typical historic averages. I say this as a mortgage holder.

Because we’re lending it to other people to borrow. Do you think the banks should keep all the interest you pay or pass some of it on to the people who make your borrowing possible?

hpi - house price inflation.

If you think that savings interest is free money and we either shouldn't get it or should get less of it, then by the same logic if you put your money into a house instead of savings and the house's value doubles in ten years, then you should sell if for what you paid for it (after all, any increase in value is "free money" you don't deserve), or sell it for the full price and donate half to the government. Money from house price inflation is undeserved "free money" after all.

As it is savers have suffered more than a decade of tiny returns on their savings and mortgage holders have benefitted from incredibly low rates. I don't remember any mortgage holders in the last few years saying "our house is worth twice as much now and we are barely paying any interest on this house loan, we should really give some of that back to the savers who are getting nothing".
Yet now the shoe is on the other foot we should somehow bail you all out because people with savings are somehow rich?

It doesn't matter that you don't know what hpi stands for, only an idiot wouldn't understand the gist of my post.

And I'll ask you again, will you be selling your house for the same amount that you paid for it in 2014? I think you will be the one moaning 'it isnt high enough' if you were selling your house and buyers only offered the same as you paid in 2014. Why do you think savers expecting interest is free money but yet you expecting to sell your house for more than you paid for it isnt free money?

The questions aren't hard to grasp are they? Will you expect to sell your house for more than you purchased it for? If you do make a profit, how is that money different and not free money?

Interest rates are the cost of borrowing money. If you’ve borrowed money you have to pay the cost.

you’re borrowing from the bank (who is borrowing from the markets) not the government anyway. Keeping rates artificially low will cause further inflationary pressures (as among other things it will cause the pound to be weaker than it otherwise would be and thus imports to rise in cost).

Financial markets and economies are very complicated. It’s not as easy as simply not increasing interest rates because it affects you negatively.

@SueVineer

Are interest rate increase alone the best way to tackle the kind of inflation we're experiencing?

You don’t understand finance.

interest is the cost of money. To lend to you or for you to lend to others (ie to put in a savings account). If you think lending money to you is worth nothing, why would anyone do it?

Not necessarily alone, no. But we cannot leave interest rates low or inflation will continue to run away. boe interest rates affect the whole economy and currency. It’s not just about mortgages (or necessarily at all - there are fix rates available).

@SueVineer

So what else could the BoE and the govt be doing in tandem with interest rate rises?

Cutting public sector pay or restricting pay awards would be an alternative or additional way to tackle inflation for example. As would be raising taxes (but it would generally have to be something widespread to have an impact- real luxury goods wouldn’t work.

The government could be calling a GE as they clearly aren't fit to govern.
But they won't. They will limp on for another year making things worse and creaming as much money as they can before disappearing into the sunset*

*presenting on GBNews

the boe are restricted in what they could do - qe levers and interest rates are it really. The government could cut or restrict public sector pay or benefits (including pensions). Or raise taxes to take out the economy. It should be done together with interest rates though.

That wouldn’t bring down inflation. Not in itself anyway.

It’s always astonishing how the same people can see interest on saving as free money (even tho it’s been taxed already had someone has had to make a responsible decision to put it aside) but then that same person would bitch if whatever advantage it is they had - maybe a public sector pension (that’s always a good one) or house price increases are somehow their right. Always after their own advantage and someone else’s.

No, but it would make me feel better for a day or two or so (well until the hangover from the "have a drink every time a Tory loses their seat" election night drinking game kicked in.)

*It doesn't matter that you don't know what hpi stands for, only an idiot wouldn't understand the gist of my post.

And I'll ask you again, will you be selling your house for the same amount that you paid for it in 2014? I think you will be the one moaning 'it isnt high enough' if you were selling your house and buyers only offered the same as you paid in 2014. Why do you think savers expecting interest is free money but yet you expecting to sell your house for more than you paid for it isnt free money?

The questions aren't hard to grasp are they? Will you expect to sell your house for more than you purchased it for? If you do make a profit, how is that money different and not free money?*

Particularly nice post this one. Manages to call me an idiot, tell me I don't know what interest is, and all done in a nice, aggressive manner. Top marks!

Actually I agree that house price inflation is a complete pile of shit. Its one of the many reasons why I feel bad for first time buyers who now have to pay out about 8 times their salaries.. I genuinely couldn't give a shit about what my house would sell for though because I don't plan to sell it. I plan to live in it. It's my home. And 1 day I hope to own it outright and hopefully not sneer at others who are struggling if similar situations occur.
I also have some savings - I'm not whining about interest rates not being high enough though, because either way I'm lucky enough to have my capital.
If you want big returns on your money, then why have you stuck it in a savings account? It is free money. Sorry but it is. It's pretty much risk free, assuming you haven't deposited more than £85k in each bank account. If you want to make big money then you have to take some actual risks, not expect big returns for putting your money in a bank account and expecting to just have access to it whenever you like!

Oh and nowhere have I asked for other people to pay my mortgage, even though loads of people keep saying they won't, and I shouldn't expect it 😂

Interest on savings isn't free money. Each year those savings stay in the bank they erode as banks' interest rates are way before inflation rates. Savings are worth less and less each year. Houses in England have been increasing in value rapidly each year in comparison.