Base rates will increase again

thegentleway

Exodi said:

thegentleway said:

Exodi said:

Nebulous2 said:

I'm still doing my own observations of hospitality and tourist spots, and can't see many signs of people holding back. A touring circus near us had to put on an extra show recently, as they were so busy. Recent meals out - restaurants have been very busy, but not generally full, which they were a few weeks ago. 

This is the same as in my experience, but I'd imagine it's because increasing interest rates as a means to counter-inflation disproportionately effects those with the largest debt - e.g. mortgages. As most houses are owned outright and less than a third are owned with mortgages, less than a third of households will be truly absorbing the blow of interest rate hikes. Martin Lewis directly asked Jeremy Hunt whether it was his intention to make mortgage holders bear the brunt of inflation (though as you can expect he skillfully dodged the question and began talking about the energy price guarantee).

Isn't that fair though seeing as inflation benefits those with largest debt since the value of the debt is shrinking? And the savers are paying for inflation as the value of their savings is being decimated. It's only really an issue if mortgage holders can't service their debt, hence the importance of stress testing affordability.

While it sounds nice in theory, you have inflation currently running at 7.95% whereas someone with a £200k mortgage at 2% with 15 years left on it (not my plan to cherry pick numbers, use whatever numbers you feel are appropriate) will currently be paying £1287 a month, but if remortgaging at 6% could expect to see their payment increase to £1688 a month (+£400). I don't think it provides any relief to someone who has seen their mortgage payment increase by over 30% to hear 'hey, I know your mortgage has gone up by 30% but just think, inflation has technically devalued the amount you owe by 7.95% so really you're benefiting from inflation. It's the poor savers who are getting decimated.'

Savers by comparison are having their savings devalued by 7.95% but can partly mitigate this through either easy access savings (~4.5%) or fixed products (~6.0%) or invested (which would be expected to outpace inflation over a long enough horizon) - the devaluation of savings will be relatively small if mitigated through competitive savings options.

There aren't really any mitigation options to mortgage holders except finding a large pot of money at the end of the rainbow to pay off their mortgage before their fix expires, jumping in a time machine to buy houses when they were cheaper, or selling.

Sorry but it seems to be you are playing with %
Using your figures, someone with £200k mortgage has saved £15.9k of the value of their mortgage (7.95% of £200k) but only has to pay £4.8k extra per year (£400 x 12). They are therefore £11.1k better off. Whereas a saver is worse off; they can't invest their savings otherwise it wouldn't be savings... 

Exodi

thegentleway said:

Exodi said:

thegentleway said:

Exodi said:

Nebulous2 said:

I'm still doing my own observations of hospitality and tourist spots, and can't see many signs of people holding back. A touring circus near us had to put on an extra show recently, as they were so busy. Recent meals out - restaurants have been very busy, but not generally full, which they were a few weeks ago. 

This is the same as in my experience, but I'd imagine it's because increasing interest rates as a means to counter-inflation disproportionately effects those with the largest debt - e.g. mortgages. As most houses are owned outright and less than a third are owned with mortgages, less than a third of households will be truly absorbing the blow of interest rate hikes. Martin Lewis directly asked Jeremy Hunt whether it was his intention to make mortgage holders bear the brunt of inflation (though as you can expect he skillfully dodged the question and began talking about the energy price guarantee).

Isn't that fair though seeing as inflation benefits those with largest debt since the value of the debt is shrinking? And the savers are paying for inflation as the value of their savings is being decimated. It's only really an issue if mortgage holders can't service their debt, hence the importance of stress testing affordability.

While it sounds nice in theory, you have inflation currently running at 7.95% whereas someone with a £200k mortgage at 2% with 15 years left on it (not my plan to cherry pick numbers, use whatever numbers you feel are appropriate) will currently be paying £1287 a month, but if remortgaging at 6% could expect to see their payment increase to £1688 a month (+£400). I don't think it provides any relief to someone who has seen their mortgage payment increase by over 30% to hear 'hey, I know your mortgage has gone up by 30% but just think, inflation has technically devalued the amount you owe by 7.95% so really you're benefiting from inflation. It's the poor savers who are getting decimated.'

Savers by comparison are having their savings devalued by 7.95% but can partly mitigate this through either easy access savings (~4.5%) or fixed products (~6.0%) or invested (which would be expected to outpace inflation over a long enough horizon) - the devaluation of savings will be relatively small if mitigated through competitive savings options.

There aren't really any mitigation options to mortgage holders except finding a large pot of money at the end of the rainbow to pay off their mortgage before their fix expires, jumping in a time machine to buy houses when they were cheaper, or selling.

Sorry but it seems to be you are playing with %
Using your figures, someone with £200k mortgage has saved £15.9k of the value of their mortgage (7.95% of £200k) but only has to pay £4.8k extra per year (£400 x 12). They are therefore £11.1k better off. Whereas a saver is worse off; they can't invest their savings otherwise it wouldn't be savings... 

Sorry, not my intention - I'm just trying to portray the average mortgage holder.

While I don't necessarily disagree with your points about long term benefits (assuming income keeps up with inflation, which is actually what the government is trying to avoid), in the sphere of discretionary spending (what I had originally responded to) the long term inflationary effect on the value of their mortgage is of little relevance. One month they might have been paying £1.3k to their mortgage, and the next they might be paying £1.7k. That £400 deficit will inevitably impact their discretionary spending and reduce the number of times they can go out for meals and visit touring circuses.

Not just those that are stretched on affordability, I think most mortgage holders will feel the bludgeon of the interest rate hikes. I'm not trying to vilify savers, I have significant savings myself (well not soon, I'd imagine I will dump them into the mortgage when my fixed term is up), but it's obviously a better position to be complaining about all the money you have saved not generating enough interest, than having a large increase in your monthly debt payment that you have very little ability to mitigate. We're talking about a lot of money. The country went into melt-down over energy price increases with subsequent government intervention. It will look like pennies when compared to the level of increases mortgage holders are soon to face.

You can appreciate that the current headlines aren't about how lucky mortgage holders are that inflation is high.

Sg28

thegentleway said:

Exodi said:

thegentleway said:

Exodi said:

Nebulous2 said:

I'm still doing my own observations of hospitality and tourist spots, and can't see many signs of people holding back. A touring circus near us had to put on an extra show recently, as they were so busy. Recent meals out - restaurants have been very busy, but not generally full, which they were a few weeks ago. 

This is the same as in my experience, but I'd imagine it's because increasing interest rates as a means to counter-inflation disproportionately effects those with the largest debt - e.g. mortgages. As most houses are owned outright and less than a third are owned with mortgages, less than a third of households will be truly absorbing the blow of interest rate hikes. Martin Lewis directly asked Jeremy Hunt whether it was his intention to make mortgage holders bear the brunt of inflation (though as you can expect he skillfully dodged the question and began talking about the energy price guarantee).

Isn't that fair though seeing as inflation benefits those with largest debt since the value of the debt is shrinking? And the savers are paying for inflation as the value of their savings is being decimated. It's only really an issue if mortgage holders can't service their debt, hence the importance of stress testing affordability.

While it sounds nice in theory, you have inflation currently running at 7.95% whereas someone with a £200k mortgage at 2% with 15 years left on it (not my plan to cherry pick numbers, use whatever numbers you feel are appropriate) will currently be paying £1287 a month, but if remortgaging at 6% could expect to see their payment increase to £1688 a month (+£400). I don't think it provides any relief to someone who has seen their mortgage payment increase by over 30% to hear 'hey, I know your mortgage has gone up by 30% but just think, inflation has technically devalued the amount you owe by 7.95% so really you're benefiting from inflation. It's the poor savers who are getting decimated.'

Savers by comparison are having their savings devalued by 7.95% but can partly mitigate this through either easy access savings (~4.5%) or fixed products (~6.0%) or invested (which would be expected to outpace inflation over a long enough horizon) - the devaluation of savings will be relatively small if mitigated through competitive savings options.

There aren't really any mitigation options to mortgage holders except finding a large pot of money at the end of the rainbow to pay off their mortgage before their fix expires, jumping in a time machine to buy houses when they were cheaper, or selling.

Sorry but it seems to be you are playing with %
Using your figures, someone with £200k mortgage has saved £15.9k of the value of their mortgage (7.95% of £200k) but only has to pay £4.8k extra per year (£400 x 12). They are therefore £11.1k better off. Whereas a saver is worse off; they can't invest their savings otherwise it wouldn't be savings... 

But inflation only actually devalues your debt if your income is rising with inflation. It certainly isnt for the vast majority. 

metrobus

Exodi said:

thegentleway said:

Exodi said:

Nebulous2 said:

I'm still doing my own observations of hospitality and tourist spots, and can't see many signs of people holding back. A touring circus near us had to put on an extra show recently, as they were so busy. Recent meals out - restaurants have been very busy, but not generally full, which they were a few weeks ago. 

This is the same as in my experience, but I'd imagine it's because increasing interest rates as a means to counter-inflation disproportionately effects those with the largest debt - e.g. mortgages. As most houses are owned outright and less than a third are owned with mortgages, less than a third of households will be truly absorbing the blow of interest rate hikes. Martin Lewis directly asked Jeremy Hunt whether it was his intention to make mortgage holders bear the brunt of inflation (though as you can expect he skillfully dodged the question and began talking about the energy price guarantee).

Isn't that fair though seeing as inflation benefits those with largest debt since the value of the debt is shrinking? And the savers are paying for inflation as the value of their savings is being decimated. It's only really an issue if mortgage holders can't service their debt, hence the importance of stress testing affordability.

While it sounds nice in theory, you have inflation currently running at 7.95% whereas someone with a £200k mortgage at 2% with 15 years left on it (not my plan to cherry pick numbers, use whatever numbers you feel are appropriate) will currently be paying £1287 a month, but if remortgaging at 6% could expect to see their payment increase to £1688 a month (+£400). I don't think it provides any relief to someone who has seen their mortgage payment increase by over 30% to hear 'hey, I know your mortgage has gone up by 30% but just think, inflation has technically devalued the amount you owe by 7.95% so really you're benefiting from inflation. It's the poor savers who are getting decimated.'

Savers by comparison are having their savings devalued by 7.95% but can partly mitigate this through either easy access savings (~4.5%) or fixed products (~6.0%) or invested (which would be expected to outpace inflation over a long enough horizon) - the devaluation of savings will be relatively small if mitigated through competitive savings options.

There aren't really any mitigation options to mortgage holders except finding a large pot of money at the end of the rainbow to pay off their mortgage before their fix expires, jumping in a time machine to buy houses when they were cheaper, or selling.

Savers have had above or near 10% inflation the last 12 months, when many on fixed rate bonds taken out in the previous years were getting around 2% returns.

Borrowers have had it very easy and still are the last 15 years to the cost of the people who actually supply the cash to them.

I have never seen hospitality businesses so busy, and flight numbers are at record highs, hence the airlines ability to charge the prices they are.

Cost of living crisis!!!!!! My backside. That is just a headline made up by the BBC and the rest of the  left wing media .

PixelPound

metrobus said:

Exodi said:

thegentleway said:

Exodi said:

Nebulous2 said:

I'm still doing my own observations of hospitality and tourist spots, and can't see many signs of people holding back. A touring circus near us had to put on an extra show recently, as they were so busy. Recent meals out - restaurants have been very busy, but not generally full, which they were a few weeks ago. 

This is the same as in my experience, but I'd imagine it's because increasing interest rates as a means to counter-inflation disproportionately effects those with the largest debt - e.g. mortgages. As most houses are owned outright and less than a third are owned with mortgages, less than a third of households will be truly absorbing the blow of interest rate hikes. Martin Lewis directly asked Jeremy Hunt whether it was his intention to make mortgage holders bear the brunt of inflation (though as you can expect he skillfully dodged the question and began talking about the energy price guarantee).

Isn't that fair though seeing as inflation benefits those with largest debt since the value of the debt is shrinking? And the savers are paying for inflation as the value of their savings is being decimated. It's only really an issue if mortgage holders can't service their debt, hence the importance of stress testing affordability.

While it sounds nice in theory, you have inflation currently running at 7.95% whereas someone with a £200k mortgage at 2% with 15 years left on it (not my plan to cherry pick numbers, use whatever numbers you feel are appropriate) will currently be paying £1287 a month, but if remortgaging at 6% could expect to see their payment increase to £1688 a month (+£400). I don't think it provides any relief to someone who has seen their mortgage payment increase by over 30% to hear 'hey, I know your mortgage has gone up by 30% but just think, inflation has technically devalued the amount you owe by 7.95% so really you're benefiting from inflation. It's the poor savers who are getting decimated.'

Savers by comparison are having their savings devalued by 7.95% but can partly mitigate this through either easy access savings (~4.5%) or fixed products (~6.0%) or invested (which would be expected to outpace inflation over a long enough horizon) - the devaluation of savings will be relatively small if mitigated through competitive savings options.

There aren't really any mitigation options to mortgage holders except finding a large pot of money at the end of the rainbow to pay off their mortgage before their fix expires, jumping in a time machine to buy houses when they were cheaper, or selling.

Savers have had above or near 10% inflation the last 12 months, when many on fixed rate bonds taken out in the previous years were getting around 2% returns.

Borrowers have had it very easy and still are the last 15 years to the cost of the people who actually supply the cash to them.

I have never seen hospitality businesses so busy, and flight numbers are at record highs, hence the airlines ability to charge the prices they are.

Cost of living crisis!!!!!! My backside. That is just a headline made up by the BBC and the rest of the  left wing media .

There is still the pandemic after effects. Many who couldn't go out, saved this new surplus money and obviously are now able to spend it. That plus many households are hybrid working and so filling their car up far less.

The is a cost of living crisis. Those on low incomes, where even under lockdown there wasn't the surplus for savings, and those mortgage holders who's fixes have ended.

PixelPound

london21 said:

Because inflation lower than expected will increase by 0.25% and not 0.5%

Possibly, but the BoE has been slow in raising the rate, and last times unexpected 50bp was to address this and be more proactive. 

Cus

Anyone know why they just didn't bump up the rate by 2-3% six months ago rather than this monthly mini increases?

ader42

This “crisis” is simply a return to lifestyles like the less afluent 1980s when we had higher taxation and nurses were paid £7k per year. Not a crisis really, just a readjustment of peoples reality.

Most of any “housing crash” that people are expecting will be due to inflation everywhere and not house prices coming down significantly imho.

I’m still expecting BOE base rate to get to the historical average of 7% as things are being taken (too) slowly. 

My low mortgage fix is up next April  

boingy

Cus said:

Anyone know why they just didn't bump up the rate by 2-3% six months ago rather than this monthly mini increases?

Because that would have caused a MAJOR disturbance in The Force, or the markets as they are more properly called. 
For an example, take a look at the aftermath of the Liz Truss era. Markets hate big surprises, especially ones that politicians promote as "bold and radical".
Gently does it in the world of economics.

thegentleway

Exodi said:

thegentleway said:

Exodi said:

thegentleway said:

Exodi said:

Nebulous2 said:

I'm still doing my own observations of hospitality and tourist spots, and can't see many signs of people holding back. A touring circus near us had to put on an extra show recently, as they were so busy. Recent meals out - restaurants have been very busy, but not generally full, which they were a few weeks ago. 

This is the same as in my experience, but I'd imagine it's because increasing interest rates as a means to counter-inflation disproportionately effects those with the largest debt - e.g. mortgages. As most houses are owned outright and less than a third are owned with mortgages, less than a third of households will be truly absorbing the blow of interest rate hikes. Martin Lewis directly asked Jeremy Hunt whether it was his intention to make mortgage holders bear the brunt of inflation (though as you can expect he skillfully dodged the question and began talking about the energy price guarantee).

Isn't that fair though seeing as inflation benefits those with largest debt since the value of the debt is shrinking? And the savers are paying for inflation as the value of their savings is being decimated. It's only really an issue if mortgage holders can't service their debt, hence the importance of stress testing affordability.

While it sounds nice in theory, you have inflation currently running at 7.95% whereas someone with a £200k mortgage at 2% with 15 years left on it (not my plan to cherry pick numbers, use whatever numbers you feel are appropriate) will currently be paying £1287 a month, but if remortgaging at 6% could expect to see their payment increase to £1688 a month (+£400). I don't think it provides any relief to someone who has seen their mortgage payment increase by over 30% to hear 'hey, I know your mortgage has gone up by 30% but just think, inflation has technically devalued the amount you owe by 7.95% so really you're benefiting from inflation. It's the poor savers who are getting decimated.'

Savers by comparison are having their savings devalued by 7.95% but can partly mitigate this through either easy access savings (~4.5%) or fixed products (~6.0%) or invested (which would be expected to outpace inflation over a long enough horizon) - the devaluation of savings will be relatively small if mitigated through competitive savings options.

There aren't really any mitigation options to mortgage holders except finding a large pot of money at the end of the rainbow to pay off their mortgage before their fix expires, jumping in a time machine to buy houses when they were cheaper, or selling.

Sorry but it seems to be you are playing with %
Using your figures, someone with £200k mortgage has saved £15.9k of the value of their mortgage (7.95% of £200k) but only has to pay £4.8k extra per year (£400 x 12). They are therefore £11.1k better off. Whereas a saver is worse off; they can't invest their savings otherwise it wouldn't be savings... 

Sorry, not my intention - I'm just trying to portray the average mortgage holder.

While I don't necessarily disagree with your points about long term benefits (assuming income keeps up with inflation, which is actually what the government is trying to avoid), in the sphere of discretionary spending (what I had originally responded to) the long term inflationary effect on the value of their mortgage is of little relevance. One month they might have been paying £1.3k to their mortgage, and the next they might be paying £1.7k. That £400 deficit will inevitably impact their discretionary spending and reduce the number of times they can go out for meals and visit touring circuses.

Not just those that are stretched on affordability, I think most mortgage holders will feel the bludgeon of the interest rate hikes. I'm not trying to vilify savers, I have significant savings myself (well not soon, I'd imagine I will dump them into the mortgage when my fixed term is up), but it's obviously a better position to be complaining about all the money you have saved not generating enough interest, than having a large increase in your monthly debt payment that you have very little ability to mitigate. We're talking about a lot of money. The country went into melt-down over energy price increases with subsequent government intervention. It will look like pennies when compared to the level of increases mortgage holders are soon to face.

You can appreciate that the current headlines aren't about how lucky mortgage holders are that inflation is high.

I was responding to Jezza's intention to make mortgage holders bear the brunt of inflation and postulating it's fair enough that we suffer some short term pain as we are winning long term. 

I do appreciate that's tough on people with no discretionary income that can't spend less on restaurants to cover increased mortgage costs. But there are still options like extending the mortgage term or going interest only so the monthly repayment is more manageable.

Sg28 said:

thegentleway said:

Exodi said:

thegentleway said:

Exodi said:

Nebulous2 said:

I'm still doing my own observations of hospitality and tourist spots, and can't see many signs of people holding back. A touring circus near us had to put on an extra show recently, as they were so busy. Recent meals out - restaurants have been very busy, but not generally full, which they were a few weeks ago. 

This is the same as in my experience, but I'd imagine it's because increasing interest rates as a means to counter-inflation disproportionately effects those with the largest debt - e.g. mortgages. As most houses are owned outright and less than a third are owned with mortgages, less than a third of households will be truly absorbing the blow of interest rate hikes. Martin Lewis directly asked Jeremy Hunt whether it was his intention to make mortgage holders bear the brunt of inflation (though as you can expect he skillfully dodged the question and began talking about the energy price guarantee).

Isn't that fair though seeing as inflation benefits those with largest debt since the value of the debt is shrinking? And the savers are paying for inflation as the value of their savings is being decimated. It's only really an issue if mortgage holders can't service their debt, hence the importance of stress testing affordability.

While it sounds nice in theory, you have inflation currently running at 7.95% whereas someone with a £200k mortgage at 2% with 15 years left on it (not my plan to cherry pick numbers, use whatever numbers you feel are appropriate) will currently be paying £1287 a month, but if remortgaging at 6% could expect to see their payment increase to £1688 a month (+£400). I don't think it provides any relief to someone who has seen their mortgage payment increase by over 30% to hear 'hey, I know your mortgage has gone up by 30% but just think, inflation has technically devalued the amount you owe by 7.95% so really you're benefiting from inflation. It's the poor savers who are getting decimated.'

Savers by comparison are having their savings devalued by 7.95% but can partly mitigate this through either easy access savings (~4.5%) or fixed products (~6.0%) or invested (which would be expected to outpace inflation over a long enough horizon) - the devaluation of savings will be relatively small if mitigated through competitive savings options.

There aren't really any mitigation options to mortgage holders except finding a large pot of money at the end of the rainbow to pay off their mortgage before their fix expires, jumping in a time machine to buy houses when they were cheaper, or selling.

Sorry but it seems to be you are playing with %
Using your figures, someone with £200k mortgage has saved £15.9k of the value of their mortgage (7.95% of £200k) but only has to pay £4.8k extra per year (£400 x 12). They are therefore £11.1k better off. Whereas a saver is worse off; they can't invest their savings otherwise it wouldn't be savings... 

But inflation only actually devalues your debt if your income is rising with inflation. It certainly isnt for the vast majority. 

Sorry what? Aren't you mixing up the ability to service debt with the value of debt?

Inflation has devalued your debt whether or not you have the income to service it.