UK interest rates held at 0.5% for years

latecomer

Unfortunately life isn't fair. I have little sympathy for people who are on the brink financially but still have expensive mobile contracts, Sky etc.

But of course the government is happy for people to spend every last penny they have as thats whats keeping the economy from imploding. Those who save are of no interest.

But it has its upsides too - I've also thought about investing into a S&S ISA rather than cash but always been too cautious to do anything about it but the abysmal interest rates is finally a big enough incentive to make me do it - which is a good thing

dtaylor84

atush wrote: »

If you are 64 and working, slap 3 years worth of salary of the 200K into a pension, get tax relief then 25% LS and income DD using equities.

You can't do that. You can carry forward the unused annual allowance from the past three years (assuming you were a member of a pension in those years) plus use the current year's allowance. So, up to £200k (currently).

However, you can only get tax relief on contributions up to 100% of your earnings -- so paying in three years' worth of salary wouldn't be a good idea.

dtaylor84

ScarletBea wrote: »

Now, whose fault is that? Why should people who are prudent, who only spend when they can afford, or who have mortgages reasonably linked to their income, suffer because millions are so lacking in basic maths that they go and get a mortgage for which even the smallest variance means they can't pay each month? For goodness sake, if someone is paying, say, £1000, an increase of 1% is £10 - they can't afford an extra £10 a month? Really?
It's just not fair...

A one percentage point rise in a base rate of 0.5% is a 200% increase.

But that doesn't mean everyone's mortgage payments will triple overnight, obviously, as it doesn't affect the capital repayments. (And mortgage rates are a bit more than 0.5% anyway)

For example, £200k over 25 years is £1066 at 4%. At 5% it's £1182.

So the hypothetical family would need to find over £110, not just £10.

bowlhead99

ScarletBea wrote: »

One thing that struck me in all the news reports about this issue was the continuous comments that this was good for mortgage holders because they were "mortgaged to the hilt", and even a variation of 1 percent point would make many people unable to pay back.

For goodness sake, if someone is paying, say, £1000, an increase of 1% is £10 - they can't afford an extra £10 a month? Really?
It's just not fair...

You might be misunderstanding how mortgages work. If you have a 250k mortgage and are paying a 2.5% repayment mortgage on a 30 year term, you pay £995 a month.

If the rate changes by a percentage point, to 3.5%, you will need to pay £1133 a month (£138 extra per month, not just a tenner).

If the rate changes by three percentage points, to 5.5%, you will need to pay £1433 a month (£438 extra a month, not just an extra three tenners).

Those on interest-only mortgages (not that there are many of them, relatively) would face a doubling of the monthly payment if their interest rate doubled.

So, people are rather more sensitive to interest rates than you might think if you haven't had one or been the half of the couple doing the maths on it.

I do agree that if people are pushing themselves to the limit of affordability when we are now at all time low interest rates, they are likely to face a problem when rates eventually rise. And that isn't anyone's fault but their own.

Unfortunately the industry standard way for banks to quote mortgage rates is something like "x% fixed for 5 years followed by our standard variable rate for the next 20 years, currently 3.79%". The 'currently' is largely irrelevant as by the time we get 5 years down the line and they come off their fix, the 3.79 might be 6.79% with the best available fixes being at 7.5 (if they are gainfully employed and qualify to remortgage onto one).

Banks are thankfully more picky about to whom they lend than they used to be, because they've been told they must be. But that stops the markets moving which is why the government are supporting it with funding for lending and help to buy etc so that it doesn't all grind to a halt and crash.

latecomer wrote: »

Unfortunately life isn't fair. I have little sympathy for people who are on the brink financially but still have expensive mobile contracts, Sky etc.

Don't think you'll find any arguments with that!

But of course the government is happy for people to spend every last penny they have as thats whats keeping the economy from imploding. Those who save are of no interest.

It's certainly true that taking money out of circulation to save for a rainy day is not desirable when the country at large is experiencing a rainy day.

So you can see why they want to stimulate lending and borrowing and spending and investing, which keeps the money going round the economy and people employed, rather than having you squirrelling away money for yourself somewhere where you can get it back on demand with no risk to principal, and the holder of your deposit can't do much with it because they have to be able to give it you back on demand with no risk to principal.

But it has its upsides too - I've also thought about investing into a S&S ISA rather than cash but always been too cautious to do anything about it but the abysmal interest rates is finally a big enough incentive to make me do it - which is a good thing

Hopefully you're smart enough to see that you should have been investing into a S&S ISA (or their predecessors) for 10 or 20 or 30 years to significantly outperform cash all along... rather than dabbling now and losing a chunk of it in a year or two and being put off investing forever.

My Dad is now (with FTSE 100 at 6500+) finally thinking about equities because his cash interest rates are not where they used to be. The first and only time he dabbled previously was in 1999 in a North American fund, maxing out his and wife's annual allowances, which through a combination of horrendous timing and a sub-par fund has meant that only 14 years later has it recovered its value. Of course, if he had also maxed his ISAs every year since, he would be sitting on a massive stack of gains, even in that same poor fund. Instead he stayed in good old cash and now with global markets at their highs is thinking of dipping a toe back in the water. Exactly the wrong way to do it...

So, now he thinks he might go back because he can do the maths and see that cash doesn't provide a return you can live off. The trick is to recognise that it never has. Once you have a rainy day fund, you should attempt to make hay while the sun shines.

Not that this is an endorsement for piling every spare penny into the FTSE today, but worth thinking about.

latecomer

Some very good points as usual.

I'm smart enough to understand that I should have been doing it for a long time, I've worked in the tech industry from 2000 and hence seem the effects of the down turn. Held company stock bought through a purchase plan rather than selling to realise guaranteed profit the discounted price, never exercised options that I held etc etc. A few shares I have in that company have finally got back to the level I bought them at 11 years later....

I want to move a fair chunk of my cash ISAs and some additional funds into a S&S ISA but am fearful of the current levels and what the immediate future may bring.

talexuser

latecomer wrote: »

I've also thought about investing into a S&S ISA rather than cash but always been too cautious to do anything about it but the abysmal interest rates is finally a big enough incentive to make me do it - which is a good thing

The problem is many are jumping into shares because of poor savings rates, and this may contribute to a bubble in share prices beyond normal valuations (more buyers than sellers) So it may not be such a good thing in the long run if it causes a crash later on...

I would not want to dissuade anyone since have done very well from funds the last 20 years, just to reinforce the stock market is for the long term and people should be prepared for short term shocks.

And yes, I fully agree, life is far from fair, and will be getting less fair for our children and grandchildren.

FLAPJACK

Had a informative meeting today with my financial professional.

The message was clear (from yesterday) to financial institutions that they now know that rates are stuck for sometime and that Funding for Lending will remain..... so as such there is no requirement for savings interest rates (meagre as they are) to remain at the present levels, as the institutions are getting cheap cash from the government....they don't need ours.

So can look forward to savings rates reducing even more in the not too distant future....?

Lloyds Vantage rate of 4% (for some) ends in Nov....it will be interesting (no pun intended) to see if the 3% figure remains.

I was told that really cash deposit/savings accounts should be regarded as just somewhere to "lodge" your cash....as opposed to under the mattress.

I was advised (if I were younger) to get stuck into the Stock Market for a few years...medium to longterm...too late for me however.

I reckon unless inflation runs away....and maybe brings on a interest rate rise....no certainty of that though as Carney today was talking about future growth and ended by saying "take that statement with a pinch of salt"....so maybe we should take with a pinch of salt the statement yesterday that "rates would rise if inflation took off".

I feel the only way "savings" are going to "grow" i.e the balance increases each month is if I add cash to the bottom line myself instead of the plan of letting interest do that.

ScarletBea

Sorry for the embarassing number mistake, I should have known better

bigadaj

FLAPJACK wrote: »

Had a informative meeting today with my financial professional.

The message was clear (from yesterday) to financial institutions that they now know that rates are stuck for sometime and that Funding for Lending will remain..... so as such there is no requirement for savings interest rates (meagre as they are) to remain at the present levels, as the institutions are getting cheap cash from the government....they don't need ours.

So can look forward to savings rates reducing even more in the not too distant future....?

Lloyds Vantage rate of 4% (for some) ends in Nov....it will be interesting (no pun intended) to see if the 3% figure remains.

I was told that really cash deposit/savings accounts should be regarded as just somewhere to "lodge" your cash....as opposed to under the mattress.

I was advised (if I were younger) to get stuck into the Stock Market for a few years...medium to longterm...too late for me however.

I reckon unless inflation runs away....and maybe brings on a interest rate rise....no certainty of that though as Carney today was talking about future growth and ended by saying "take that statement with a pinch of salt"....so maybe we should take with a pinch of salt the statement yesterday that "rates would rise if inflation took off".

I feel the only way "savings" are going to "grow" i.e the balance increases each month is if I add cash to the bottom line myself instead of the plan of letting interest do that.

Interesting that you say it's too late for you now. Many people now are looking at placing pensions schemes into drawdown rather than an annuity, and to generate reasonable returns this means that much will be placed into equities. Stockmarkets are now generally yielding more than savings accounts and bonds, and whilst their is risk there is also growth potential. I'd never suggest people taking risks they aren't compfortable with or in areas they don't understand but we are looking at potentially many years of depressed returns with equities looking to be a rare potential for better returns.

Also interested in your reference to a financial professional, if you are only looking at savings is this something that they can add alive to?

FLAPJACK

Well its useful to get an idea of ones situation from someone "in the trade".

Indeed stockmarkets are yielding more than savings accounts (almost a case of what isn't!).

In my situation its a case of not having the luxury of medium to long term time to invest and absorb losses and those losses being covered by growth. Its a case of do I use my capital as a pension and "drawdown" an income from myself annually.

Luckily I have a pension income which I can live on....and have capital behind me to dip into as and when...it's just galling to see the capital not providing a return.

Having said that I realise I am in a VERY fortunate position of being at this stage in life with a roof (paid for) over my head and an income that I could enhance if needed.

From the meeting yesterday I learnt that with my age and risk adversion I need not think I am not doing the correct thing by not going into the stock market gung ho....I thankfully can afford to not risk the capital.

I have done all I can do basically, in providing myself with the best options of Isa's, S&S Isa's, and yes shares (inherited ones kept for sentimental reasons) plus fixed rate bonds.

But much to the horror to a lot on this forum I am exposed to inflation as there is a fair amount in cash.

But as the capital is protected by the pension income I can treat it as a deminishing pot....which obviously goes against all that the majority on the forum can swallow....at least that is one benefit of being at a certain age.