BoE thinking

amnblog

RogerPensionGuy said:

Geoffw27 said:

Can anyone explain to me how raising interest rates, which will increase mortgages will help inflation now, as 8 out of 10 mortgages are fixed rate?
surely the immediate effect will be negligible.. 

If people feel inflation is likely to stay at these elevated rates people can tend to buy stuff now as it will be more expensive later and these activities will actually raise or hold inflation at these high rates.

There's a lot of press about mortgage rates, my understanding is that the 1% or 2% mortgage rates train the last 10 years was always going to stop and now it has, guessing long term mortgages rates will be more like in the 4.25 to 5.5% range after 2026 and stay at these levels for decades. 

If mortgage takers were not informed advised rates may go up to 6 or 7% in the future, maybe this will be another miss selling scandal?

They were, and it's not Roger

Example text from 2021 Mortgage Offer: "For example, if the interest rate rose to 9.24% your payments could increase to £1,678.08."

Scorpio33

TheJP said:

Scorpio33 said:

1) In theory, the higher interest rates will mean higher savings rates, encouraging more people to save
2) Mortgages are not the only form of borrowing. This will mean less loans, credit cards etc so less spend overall in the economy.
3) Even if people are on a fixed rate, those fixed rates come to an end (2.4m in 2024 - https://www.theguardian.com/money/2023/jun/17/uk-homeowners-face-huge-rise-in-payments-when-fixed-rate-mortgages-expire) , which will mean higher rates for them, and less spend in the economy.
4) This also makes in harder for businesses to borrow money, meaning they will borrow less (and so spend less).

All the above points to lower spend, so lower inflation.

The other aspect is that lower spend could mean lower profits, and so a recession. It is a balancing act.

I wish i could save the £450 extra a month i now pay due to the BOE increase, the only winners here is the banks and the backers. The rate is not passed on to savers, highest rate i have seen is 4.10, that's 1.4 lower than the base rate.

I completely agree, which is why I stated in theory savings rates go up. The banks seem to want it all..

ian1246

I also believe the government shouldn't be moving to provide support to Mortgage Holders.

I say this as a 34 year old who has a Mortgage with 35years left on it till its repaid. Myself and Wife decided to move in 2021, admittedly in response to the Stamp Duty Holiday, ending up moving into our current property on June 31st 2021 (We brought our house for £310,000. This is the same price our seller brought it for in 2007 - due to a messy divorce he had allowed it to be cosmetically worn down, so I don't think a lot of other viewers were able to see past the mess/wear & tear!. It was originally on the market for £395,000). We put the mortgage over 37 years in order to ensure it was affordable - with it roughly 25% of our combined take-home income. We have always been very financially careful, which allowed us to put a 25% deposit on our first house, which we brought for £165,000 in November 2015 and sold in June 2021 for £193,000.

We chose to stick with our current Mortgage Provider since they were quite competitive. At the time, I took one look at the record-low rates in place and promptly decided to go for a 10 year fixed deal, knowing that we were planning on having a family. 10 years would ensure we were able to fix our mortgage-payments for that period, whilst we battled with all of the extra costs which come with young children (Primarily Childcare costs & wife working reduced hours).

This was a conscious decision on our part, choosing to accept paying something like 0.6% higher interest per year on our mortgage in order to have the safety of having our mortgage payments fixed for 10 years whilst we got those crucial expenses/years out of the way. The other part of the decision was factoring in the remaining equity we would have in 10 years time would be significantly lower than the original amount and that we would have hopefully had 10years of pay-rises when it comes to time to renew our mortgage-deal - meaning in real-terms, the mortgage payments will have fallen significantly vs. pay. We looked at this with purely because there was always the risk the Interest Rates would climb back up over such a period of time - it was an obvious risk, one literally wrote into the mortgage offer received giving you examples of what the monthly payments could be if XX rate is in effect.

It boggles my mind that people, who were too short sighted and frankly greedy - are now banging the drum demanding government help. People chose to opt in for 2 or 3 year fixes rather than longer 5 or 10 year fixes precisely because they were cheaper and they wanted to save money, just as myself and wife chose to opt for the more expensive longer term fix, in order to mitigate the risk of increased interest rises.

I don't think it is fair if other taxpayers are now forced to pick up the bill for other individuals decisions.

I do feel bad for those who fixed for 5 or 10 years though  and are now coming off those fixes - they'll have missed out on all the cheapest interest rates and be facing far higher mortgage payments. But I don't know what the answer can be for those...

##################

On a side note, we have recently (At the very start of May 2023) taken a £7500 Loan at 5.64%, fixed over 5 years, which we have used to purchase Solar Panels for our house (costing £6390). It is hoped this will save us in excess of £600 a year between reduced energy bills/energy export. That would represent a 9.38% return on our investment (as of the current projected energy prices for July 2023). In the medium to long-run (5-10 year period), I'm expecting energy prices to gradually increase with inflation, so this return will only go up. Its also, crucially, helping mitigate some of the risks represented by future energy price-rises.

We have the funds to pay this loan off-outright if required, but are currently leaving them sat in the bank since approximately £4000 of this is represented by 6.25%+ Regular Savers (which we are adding to at £300 a month), whilst the other £3500 is sat in a 4.25% limited-access saver.

I could pay £3500 off our loan, but I'm inclined to hold onto it at this time since I suspect its interest rate will go up over the next 5 years and end up either matching or exceeding the rate we're paying on our loan - and having that extra money available is useful in-case life throws anything unexpectedly up.

As with everything, personal finances is all about cost & risk. A lot of people need to start being a little more thoughtful in what they do with their hard pressed ££'s.

jimjames

Scorpio33 said:

TheJP said:

Scorpio33 said:

1) In theory, the higher interest rates will mean higher savings rates, encouraging more people to save
2) Mortgages are not the only form of borrowing. This will mean less loans, credit cards etc so less spend overall in the economy.
3) Even if people are on a fixed rate, those fixed rates come to an end (2.4m in 2024 - https://www.theguardian.com/money/2023/jun/17/uk-homeowners-face-huge-rise-in-payments-when-fixed-rate-mortgages-expire) , which will mean higher rates for them, and less spend in the economy.
4) This also makes in harder for businesses to borrow money, meaning they will borrow less (and so spend less).

All the above points to lower spend, so lower inflation.

The other aspect is that lower spend could mean lower profits, and so a recession. It is a balancing act.

I wish i could save the £450 extra a month i now pay due to the BOE increase, the only winners here is the banks and the backers. The rate is not passed on to savers, highest rate i have seen is 4.10, that's 1.4 lower than the base rate.

I completely agree, which is why I stated in theory savings rates go up. The banks seem to want it all..

Rates have gone up. Best instant access is currently just over 4% and that was with base rate at 4.5%, further increase likely as a result of this week's rise

tifo

A lot of the inflation is attributed to higher energy, food and fuel prices due to the war in Ukraine (it's still mentioned in the media), which no mortgage holder could have predicted so they can't be blamed for making the decision they did pre war. The govt has also made a lot of money from the increased prices through taxation, and no windfall tax on the big corporations price gauging because they're too scared of them.

sevenhills

Sarah1Mitty2 said:

Sg28 said:

kingstreet said:

Interest rate hikes to cure supply-side inflation. It's barmy.

Still, there's more chance of seeing Lord Lucan riding Shergar than there is them accepting the "B" word might be the issue...

The problem is that supply side inflation can easily become home grown inflation and once it does its hard to stop. 

Media outlets already saying that this is now the case, historically I don`t think inflation has ever been tamed without rates HIGHER than inflation? If that is the case we will need about 9% on the base rate.

Countries with really high inflation often have high-interest rates, so I don't see how interest rates on their own solve inflation.

We get told that high wage increases cause inflation, I think that is meant to keep poor people poor, as it wasn't caused by wage increases.

Quantatrive EASING(qe) is said to cause inflation, we have had billions of that.

Sarah1Mitty2

sevenhills said:

Sarah1Mitty2 said:

Sg28 said:

kingstreet said:

Interest rate hikes to cure supply-side inflation. It's barmy.

Still, there's more chance of seeing Lord Lucan riding Shergar than there is them accepting the "B" word might be the issue...

The problem is that supply side inflation can easily become home grown inflation and once it does its hard to stop. 

Media outlets already saying that this is now the case, historically I don`t think inflation has ever been tamed without rates HIGHER than inflation? If that is the case we will need about 9% on the base rate.

Countries with really high inflation often have high-interest rates, so I don't see how interest rates on their own solve inflation.

We get told that high wage increases cause inflation, I think that is meant to keep poor people poor, as it wasn't caused by wage increases.

Quantatrive EASING(qe) is said to cause inflation, we have had billions of that.

Yes, but for years it just seemed to keep deflation at bay (not in housing or stocks though, a lot of the extra money went to these sectors) until the really reckless "cash injections" during Covid?

naf123

Why is the BoE not doing QT?