Very worried about Inflation&Interest rises like 1000s of others with Money Problems

Tottonian

Please can somebody explain when inflation rises that there thinking of increasing the interest rate from 0.5% to a possible 6%, surely this would have a reverse effect as people are struggling with bills, mortgages, rent, debt etc. Like most people in Britain I have had no pay rise in 3 years although everything has gone up, surely if they follow through with an Interest rate rise more people will be far worse off , I’m worried that we will have our house repossessed if we cant afford the mortgage as I have no spare cash (Like millions of others & 1000s of people with mortgages) , I already have a f/t job with 2 p/t jobs. I have my own finance problems at the moment & this would make it worse.

jb79_2

Interest rates are a blunt tool in curbing inflation that occurs as a result of increased demand in the economy. The current inflation rate of 4% is by and large caused by an increase in global commodity prices (e.g. food and natural resources) and tax hikes rather than increased demand in the economy (or so we think). That's why the BoE are reluctant to raise rates just yet... if this years Q1 GDP is negative or low you'll probably find that a rate rise is delayed further.

If rates are raised then inflation should come down (if the inflation is caused by increased demand) therefore the costs of everyday living will fall. A runaway inflation rate is seriously dangerous though, just look at Zimbabwe for an extreme example of how it can destroy an economy.

Meeper

I'm afraid I have no positive responses to give to the OP.

Interest rates will increase this year in order to combat rising inflation. The point being that if interest rates increase people will have less free income therefore they will spend less. If inflation reduces (deflation) the cost of living in general will reduce, thus easing some of the pressure.

I'm sorry to go here, but....I would imagine that like many many others in the UK during the times of easily available credit you lived beyond your means and did not put enough aside in terms of savings for when times were tough. I have been in exactly this position myself, and I absolutely feel for you, but I'm afraid that your situation, like mine, could have been avoided with some prior prudence.

If it's any consolation, the Bank of England Base Rate won't be reaching 6% any time in the next 5 years.

Tottonian

Meeper wrote: »

I'm afraid I have no positive responses to give to the OP.

Interest rates will increase this year in order to combat rising inflation. The point being that if interest rates increase people will have less free income therefore they will spend less. If inflation reduces (deflation) the cost of living in general will reduce, thus easing some of the pressure.

I'm sorry to go here, but....I would imagine that like many many others in the UK during the times of easily available credit you lived beyond your means and did not put enough aside in terms of savings for when times were tough. I have been in exactly this position myself, and I absolutely feel for you, but I'm afraid that your situation, like mine, could have been avoided with some prior prudence.

If it's any consolation, the Bank of England Base Rate won't be reaching 6% any time in the next 5 years.

If the worse happened & it went to 5% or ever 6% what payments would I be making on a £144000 mortgage, at the moment its around £620ish a month.
Thanks Tottonian

Meeper

I would imagine that interest rates at around 5% would add around £500-600 per month onto your payments, roughly speaking. Other people I'm sure will give some more precise responses.

Wh05apk

Personally I cannot see rates going back to 5-6% for a few years.

With regards to rate rises this year, I am still not too sure, the problem being that although we have inflation this is normally caused by excessive demand, which interest rates can stem, the current inflation is caused by rising commodity prices and to a degree tax/fuel rises although these will drop out later in the year/next year, increasing interest rates will therefore have no impact on these, and as has been said will kill what little growth there is.

I suspect the BofE will play the political card about sept when payrises start being negotiated and start raising them then, but I dont think it will be too much.

beecher2

Tottonian wrote: »

If the worse happened & it went to 5% or ever 6% what payments would I be making on a £144000 mortgage, at the moment its around £620ish a month.
Thanks Tottonian

You haven't said what rate you're paying, and what the term is. If you're on a 30 year term and paying 3% you'd be paying £612 at the moment, but if your rate increased to 6% you'd be paying £871.

Have a play around with

http://www.bbc.co.uk/homes/property/mortgagecalculator.shtml

and go onto the Debt Free Wannabee forums for help in freeing up money in yuor budget.

Burridge60

Tottonian wrote: »

Please can somebody explain when inflation rises that there thinking of increasing the interest rate from 0.5% to a possible 6%, surely this would have a reverse effect as people are struggling with bills, mortgages, rent, debt etc.

I wasn't struggling to pay my bills and expenses of living when the rate was 5.75% so why oh why did they slash it!

I was remortgaging to a nice tracker at 6.39% in the expectation of a few percent off the rate in the next 12 months. So why the hell did they slash it to 0.50%. And wasn't it curious that the banks suspended all their products just before a BoE meeting each month?

Hands up anyone who's credit card rate is around 10%! Anyone with a personal loan agreed lately below 7.5%?

The Banks needed to repair their balance sheets and now thats done and we are not doing QE any more the shift is to the public again by raising interest rates.

Our Government bailed them out. We have paid through the nose for credit and finance and mortgage renewals and now after they have flung fuel prices, vat and cuts in our public services at us they ask us to pay again with higher interest rates.

I am not a conspiracy theorist but this is looking like a cut and dried case!

Henry_P_Chester

Tottonian wrote: »

Please can somebody explain when inflation rises that there thinking of increasing the interest rate from 0.5% to a possible 6%, surely this would have a reverse effect as people are struggling with bills, mortgages, rent, debt etc. Like most people in Britain I have had no pay rise in 3 years although everything has gone up, surely if they follow through with an Interest rate rise more people will be far worse off , I’m worried that we will have our house repossessed if we cant afford the mortgage as I have no spare cash (Like millions of others & 1000s of people with mortgages) , I already have a f/t job with 2 p/t jobs. I have my own finance problems at the moment & this would make it worse.

Unfortunatly for people like yourself it's a bit of catch 22. If interest rates go up you will pay more on your mortgage and if they dont go up you pay more for food/petrol and other essential items. So either way you will be worse off.

Although the inflation we have currently is mainly driven by high commodity prices these are multiplied by the week pound. inflation in the US is almost 0% and Europe under 2% yet they have to pay the same high commodity prices as us. Raising interest rates has the effect of strengthening the currency therefore making these imported costs cheaper.

Personally I believe interest rates will begin to rise within the next couple of months. I doubt they will be higher than 2% by the end of this year though.

Jonbvn

Burridge60 wrote: »

I wasn't struggling to pay my bills and expenses of living when the rate was 5.75% so why oh why did they slash it!

The BOE does not decide the interest rate based on whether you or anyone else is struggling to pay their mortgage or not.

If you check out the current mortgages and savings accounts available, you will see the majority of products have rates that are completely unrelated to the base rate.