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[MSE Lawrence]

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.

Read Martin's 'Can we cope with the base rate rising?' blog

Click reply to discuss below.

[sandwichman888]

Not sure I agree that BoE will rise as quickly as Martin fears. More likely it will take until 2011 to reach 5% or thereabouts. In the short term therefore it makes sense to either invest those savings on interest rate reductions or pay your Mortgage down - that is, unless you are one of the unfortunates who have still not been passed on the benefits of recent BoE rate reductions. There are additional grave concerns which applies to these unfortunates. The Lenders who have failed to pass on the base rate reductions and are currently charging around 5-6% on SVR, will as BoE rate rises,bump up their rates to around 11%. THAT will cause REAL PAIN. The problem for many of these Borrowers are that in many case the equity will be insufficient to rearrange a new Mortgage deal and they are caught between a particularly NASTY Lenders Rock and a VERY HARD place.Time for a change in legislation I think (UNFAIR TERMS & CONTRACTUAL CONDITIONS)because I am sure that no one KNOWINGLY signed up to those differentials in the Rates!

[tattoed bum]

things sometimes arent as simple as trying to save the money thats extra with the mortgage interest drops ,
in my circumstances when the interest rates started dropping my husbands hours at work also started dropping ,he is now currently on a 3 day week and has been since before christmas ,
our spending has now been cut to the bare minimum as im sure lots of other housholds are ,
so at the moment if the rates go back up but businesses dont manage to pick up i can see a lot more people losing there homes .

[wasted]

I think that there may be some first time buyers who may get caught up with these interest rate differentials. I re-mortgaged in Jan 2007 and my offset rate was .49 above base rate. so currently under 1% The current product range from the same lender is offering 1.99 above BBR (60% LTV) and 4.24 above BBR (80% LTV). I have also noticed that the differential is no limited to offset mortgages. I have seen a tracker @ 3.99% above BBR (80% LTV)

If a borrower takes out a tracker mortgage which is currently at 2% above BBR now and finds the payments a little daunting. What will it feel like when rates start to rise? It wont take long for the interest payments to double once the BoE governor starts to raise interest rates to reign in inflation which I expect will soar as a result of the government borrowing and QE measures that have been taken recently.

Those individuals and families buying or refinancing now are likely to feel the pain in a year or two.

[baby_boomer]

I agree with Sandwichman - except, as a taxpayer, I've more sympathy with the banks' position. They are also between a rock and a hard place.

What Martin seems to omit is that average mortgage rates haven't fallen in line with base rates, but are quite likely to rise with base rates when the trend reverses.

The cut to 0.5% has given the banks the opportunity to widen margins in order, quite properly, to set aside provisions for bad debt / rebuild their capital base / be in a position to pay back the taxpayer.

None of those genuine reasons for wider margins is going away any time soon.

So the pain of future interest rate rises will not just be psychological - as Martin implies. It will also be very real,, especially combined with the future tax rises we are bound to see.

However Martin is right to raise the issue of higher rates. We very easily lapse into thinking that the current situation will continue and it won't.

If the future pain is too great, perhaps there will be need to be a debate about whether to retain the 2.5% inflation target? (But don't expect this in the election )

[MiserlyMartin]

I say bring on higher interest rates ASAP. Savers have been hammered by this government. 0.5% is stupidly low¬!

[SantaClogs]

I guess a lot has to do with whether a rise has more +ve effect on interest rates for savers or -ve hammer on rates for borrowers. We see that financial institutions are often slow to pass on rises to savers, and quick to use them to clout borrowers, and being shouted at by the government about it seems like water off a D's B. The great thing about MoneySavingExpert is that it encourages better behaviour by the financial giants - e.g. if they don't raise interest rates for savers we can be informed enough to take our loot & put it elsewhere; & if on the borrowing end we have more chance to get a better deal from the system as we know of more alternatives.
Two further thoughts -
A) 2 recent articles by different authors in the Telegraph business pages suggested an inflation wasn't as far off as the Government thinks, and
B) my own solution to poor and unstable interest rates for savings is to invest in green savings & energy for my home - that way I know I'll go on getting a return on my capital no matter what the market does.

[Mozette]

Well sadly I've very little in the way of savings, but happily my mortgage was a tracker and fell quite a lot, which is enabling me to pay for some urgent home maintenance by having it on 16 months interest free, saving the 'spare' mortgage money to pay it off before I have to pay interest. Then I can really attack my low LOB card, then once that's done, if the rates are still low I will overpay my mortgage.

When all's said and done, I afforded it at c6%, so I could again if I have to.

I just really feel for people who rely on their savings, so I honestly do hope it goes up a bit soon. I wouldn't mind going back to about 5%; that seems a bit more fair.