Could see it coming but it’s going to hit a lot of families very hard. Mortgage’s knock on effect on the housing market, where will it all end.
I’m not an economist so can someone explain to me how making people poorer helps? Inflation is up due to food, fuel answer energy prices so BoE decides people don’t have it hard enough and now makes their housing costs more expensive too. It’s absolutely ridiculous, no?
Lifted from PHOriginally Posted by TaketheCannoli
"Aren't rate raises to protect against (further) currency devaluation? We all think in £'s but if our houses etc keep going up a few percent a year but the pound drops more we've lost money/wealth, it might not be apparent straight away, but it is as the cost of everything we import goes up and we import a lot (we run very high trade deficits). A devaluing currency would take far more down than interest rates rises?
That's been my assumption, but then I'm only armed with an A level in Economics so it could be more complex than that."
"As you state, perhaps the primary reason for the rate rise is to reduce external inflationary pressures, particularly on imported energy.
I can't see how much of an impact though given our lower rate compared the US. But like I said, not even remotely an expert."
Man I wish I fixed a few months ago.
This is what they say:
https://www.bankofengland.co.uk/know...he-uk-going-up
Sorry I am no macro economist but it seems like a sledgehammer approach.
There's been an immediate drop in the GBP against the EURO, normally the reverse happens? https://www.tradingview.com/symbols/GBPEUR/
Last edited by MartynJC (UK); 4th August 2022 at 13:55.
“ Ford... you're turning into a penguin. Stop it.” HHGTTG
Talk of a recession longer than the GFC also! Although nowhere near as deep
Currency and gold markets ceased to make any rational sense years ago. To the extent that I think they're the next fixing scandal waiting to happen.
Taken from that article:
"Higher interest rates make borrowing more expensive and encourages saving. Both of those things reduce how much people spend overall. This helps to push inflation down".
So what happens to those people who can't afford increases in their borrowing (housing) rates and saving of any description is a pipe dream? Are they just an acceptable consequence? NRPI (no real person involved)? It feels like those who can least manage get hit the hardest as usual.
Ultra- low interest rates couldn't last forever, unfortunately UK house prices have been fuelled by the affordability of cheap mortgages and people have (literally) bought into the fallacy that interest rates wouldn’t rise significantly. The fixed interest deals have lulled people into a false sense of security regarding their monthly outgoings.
Raising interest rates to combat inflation is like trying to do a U turn with an oil tanker, it’ll take time to have an effect and further rises may be necessary. Not good news for many people, it’s hard to see how we’ll avoid a recession/ slump/ downturn over the next 12 months. In general people will have less money to spend, that’s a certainty, spending on luxury items will be hard hit........fewer watches and designer clothes will be bought!
I’m not happy with the situation and I’m not dismissing it lightly, but having lived through similar times in the past I’ve learned to adapt and accept things. No point in ranting over it.
Best take a long view :-
https://www.businessinsider.com/char...15-9?r=US&IR=T
B
It will probably get worse in the short term. During a recession, the sensible thing for a government to do is increase or at a minimum maintain taxation levels. The BoE are fixated (mandated) on keeping inflation at below 2%. That figure may be unrealistically low, especially as the economy is overheated post-Covid. Also interest rates are a historical (@Brian great linked article) level. They had to go up at some stage. Not much compensation for someone who is over extended on a mortgage, but these chnages take time.
BoE are predicting inflation to peak at 13% end of next year, having lived with those figures along with interest rates at 12% back in the 70s it was not pleasant in fact very austere. A lot of the 25s to 40s with families who are used splashing the cash are going to have to learn to tighten belts and watch the spending.
Last edited by hilly10; 4th August 2022 at 16:07.
When you “print” huge quantities of money as we did during Covid you increase the money supply for a finite set of resources.
That leads to inflation … too much money competing for the same resources.
In fact it’s worse as the resources in many cases are reduced due to Covid and war.
So to reduce inflation you have to extract money from the “system” governments have two levers, tax and interest rates.
Which ever one they pull it means the parties over so tighten your belts.
Anyone under 50 has probably never felt this so it’s going to be uncomfortable for many.
Surely not worse than the GFC (economy)?
Much worse.
Global demographics are commencing a downward spiral, global supply chains are fragmenting, Eastern Europe/Ukraine, Net Zero is environmental and economic suicide as we do not yet possess good enough storage technology or base load generation and there will never be enough lithium for the current path.
The next few years are NOT going to be fun.
Read an article earlier today about what goes into making one car lithium battery. Quite shocking.
I also read/heard somewhere earlier this week about the IMF mentioning about using less natural gas /electric… certainly one way of doing that is that the prices will be so high people may use less due to affordability. Also convenient way of getting closer to net zero.
Ofgem I also hear are saying price cap will be every 3 months? That also means prices/payments going up even quicker,no?
The storm is brewing….
Good, i might start to see a bit of interest on my savings instead of the pitiful returns of the last decade.
For those folk who have taken out mortgages during the historically low interest rates of late did you expect interest rates to stay this low forever? They should have realised rates would increase eventually and provided a buffer in their finances to cover it.
I think you may be forgetting, inflation is going to devalue your purchasing power faster than any breadcrumbs that the savings rate is going to throw your way. Inflation isn't good for anyone except those heavily in debt who can keep their income up.
Mortgage providers do, in theory, stress test against increasing future interest rates. If you've got 6 figures in the bank you'll be paying tax on the interest, even at todays paltry rates.
The regulatory requirement to do that was waived recently, so lenders can choose to use the stress test or not. Many won't, aiming to win the business.
Was surprised to read today that only a third of households have a mortgage. I would have guessed at 65%. Of those many are on fixed rates so they reckon just 2m mortgages will be immediately effected by the rate rises. As for those with credit card debt I can’t sympathise as in most cases that is discretionary spending
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The most viable solution to the energy crisis is nuclear plants - though sadly they take 20 years from inception to operation.
On the original interest rates point, I think 1.75% is still below the historical average. Unfortunately it comes at us after the lowest rate-average decade ever, so people aren’t used to it and are exclaiming WTF.
It will be a difficult period of adjustment - where things we have taken for granted such as holidays, TV streaming services, and mobile phone upgrades become luxuries rather than the norm.
Flipping 'eck you are right! This has only just come into play though. I'm in the process of buying a house and, despite the low loan to value, the mortgage provider was very thorough regarding affordability checks. That may be due to me being self employed though.
FT article from June, but a realistic view of what to expect - "If the economy returns to what used to pass for normal, we should expect a Bank Rate of 4 per cent or 5 per cent."
https://www.ft.com/content/e7829146-...c-176cb7036f06
Unfortunately many people have been misled into thinking that very low interest rates were going to be a long-term prospect.
Don't just do something, sit there. - TNH
“Build back better” aged well.
I'm not sure whether to fix at 3.5% for 5 years or stay on the SV that tracks 2% above base rate. Can you see interest rates coming back down when recession hits?
It got sacrificed on the high altar of Net Zero.
Given the short term populism of modern politics and the desire to get elected at all costs I somehow doubt those at the top will allow us to remain in economic purgatory for too long. Far more important than granny freezing to death is MPs losing elections so expect to see some brave new economic measures come out and the can kicked down the road just like the climate. This inflation is in large part caused by an extenuating reason that interest rates won't help and once the recession is here economic policy is geared towards getting us out of it, not keeping it going until cornflakes are at the correct price as in this case it is out of the economists' hands.
This is the crux of the problem, together with an expanding world population that is also expecting these luxuries as the norm, together with throw away clothes and the rest of the waste that is linked to the hedonistic lifestyle we have evolved into.
I am old enough to remember the bank BASE RATE at 15% and if you could get a business loan at 2.5% above base you had driven a good deal. Mortgage rates of 15%. Credit cards were for the wealthy only, we mere mortals were not permitted one. (I still don't have one and never had one).
As for holidays, we will have been married 36 years in a month or so, in that time we have had 2 holidays. My mobile phone is a Samsung S4, I don't know how old it is but they are on S22 now! And as for all those subscription telly things, we don't have a TV anymore, we listen to the wireless, like we did when I was growing up. make do and mend has been forgotten, as has the food rationing that many still alive endured in their childhood.
People have had it very easy for the last 30 years and taken life for granted, expecting it to be handed them on a plate. Workers cannot be found, but there are many unemployed. I work with a team of guys on this site, it is always the same, they 'can't be bovvered mate' to clean up after themselves, expecting someone else to do it for them... then they complain when the canteen is a mess and there are no clean mugs. They just get angry and abusive when I suggest they wash their own mug when they have finished with it instead of leaving it with the remains in the bottom and walking off. Attitude towards other people and just being neat and tidy point towards an 'entitled society'. I bring my own mug and keep it in my lunch bag. how is this linked to the financial situation? It is an example of 'life today', easy come easy go with no thought to the future. A washed mug means a clean mug in the future... the same thought process can be applied to the financial situation. Saving for a rainy day, by just saying 'no' and going without has been replaced with, 'sod it, I'm having it.'
That last paragraph is so very true.
I agree with Kairos. Unfortunately humans are too stupid to properly plan ahead. We shall continue to consume whatever is there, and breed uncontrollably.
Our instinctive brains are no different to a housefly. We are still animals despite what we might fool ourselves into believing otherwise.
My fixed term is due to expire this coming January - oh goodie!
A friend's son and his gf have, STC, just bought their first property together. Not sure on the length of fixed term though it was 3.8% for 95% at 40y. That's one heck of a lot in interest alone...
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I find this website very interesting, shows how many of our own countries we need to sustain our lifestyle, and how many planets we’d need if everybody lived like us. Doesn’t make good viewing.
https://www.overshootday.org/how-man...es-do-we-need/
The TLDR is we need to live less like the UK, and more like Sudan.
On a forum that seems to have more than its fair share of multiple house owners, multiple car owners, collections of wrist trinkets, not to mention Barbour jackets, expensive boots and MX-5s ;-), food for thought perhaps?
Interest rates really are a minor problem in comparison, but let’s keep thinking in the short term.
Also agree with previous comments about how people will have to think twice about buying something on credit where they may not have given a second thought previously. I haven't used a credit card in many a year and I've survived.
Credit cards aren’t just about the credit.
I use a credit card for everything, but pay it all off monthly - you are far better insured for many things using a CC.
They are not the enemy, just need using appropriately.
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Depending on charges, it will be worth getting a new deal now
No.
To build back better you must destroy everything first. Lock that deal in now if you can.
Same here, discipline is key though only spend what you can afford.
Exactly..
I was talking about this yesterday and said that people today have it far too easy, several holidays a year, cars a few years old, social life expenditure, lip fillers at £150 a go, £1000 phones, designer clothes blah blah blah.
It was not that long ago that a working family (one main bread winner and the other having a part time job) could afford one UK holiday a year, a treat was fish and chips on Friday night and the family car was cheap and reliable.
I know that is the case for many families still and many worse off I imagine but I'm talking about the middle of the road family, that family now has far more expenditure and the earners would not have seen rough financial times due to their age as borrowing has been low and wages generally high, a correction is needed and those families will have to get used to cutting back and using their money for essentials rather than splurging on crap.
Nowt wrong with that. At the start of the Pandemic i had flights cancelled with Ryan Air after repeated attempts for a refund i got it back via my Credit card. But as said pay off monthly. Also the points i collect pay the Xmas food bill, might have to add a little this years though.
I need a set of those rose tinted specs! :-)
It’s always been relative. Houses and cars have never been ‘cheap’, just relatively cheaper than the inflation adjusted numbers you see today, but salaries were far lower as well.
Even people who claim to be poor and have nothing still have far more than the majority of the world, it’s that relative word again, relatively poor compared to the richest here in the west.
We all know people who are at both ends of the wealth spectrum I’m sure, the same people who say that they never borrow on a credit card probably thought nothing when borrowing another £100k on the mortgage to get a house in a ‘great area’ or for another two bedrooms they didn’t need. But it’s ok, as house prices have gone up and therefore it’s a good ‘investment’.
We’re all on a ridiculous hamster wheel if we’re honest (either by choice or because we have to be), and if higher interest rates mean some of us look at getting off it and re-evaluate our priorities then perhaps that’s a good thing.
You can start shopping around for new deals now as the mortgage offer typically lasts 6 months. Our home and BTL fixed rates are both due to expire at the end of Sept so back in March we got new offers in place at the earliest opportunity and will only complete when the existing fixed rates end.
The mortgage rates are all over the place though. 5 year fixes are cheaper than 2, our BTL with 60% LTV is cheaper than our home with 30% LTV. There is almost no premium for higher LTVs at the moment which is most strange.
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Like some I started the process of an early remortgage a while ago and since then the BOE rate has gone up 0.75%. I had to pay a penalty to exit my current agreement early but I have kept my payments almost exactly the same for the next 5 years with a 5 year fix. I was hoping and expecting so save £200 a year come remortgage but ho hum.
I like others was surprised that’s there was no difference between 85% LTV and 80% LTV. My broker said it’s a bit odd at the moment and VERY busy as so many are looking to fix early before my rate increases.
I fixed for 5 years at 1.12% in Dec. So happy I did!
I need to add some context as you make fair points.
It was quite some time back now however the very short story is that I gave my then girlfriend a credit card on my account, she ran up a huge amount of dept and I was left to pay it off. Not a huge amount of money in real terms though it scared the bejesus out of me and I haven't had a CC since! Maybe I should reconsider my stance though I've come this far without...
My original point was that many use credit for cheap(sic) and easy thrills and are possibly ignorant of how much interest they're paying for the privilege.
Already emailed the advisor I used last time around, I suspect he's going to be a touch busy at the moment!
I bet!
The sad reality is that many are using credit cards for everyday essentials/expenses, not just cheap thrills, and are kicking the can down the road with regard to paying it off.
Obviously, not a great idea at all, but many feel they have no choice.
Agreed, and it'll become an even bigger hole to climb out of with increased energy costs and so on.
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