Mortgage struggles

[Tashyboy]

I don’t have a mortgage but am well aware of peoples struggles. Ave been there before and it is a dreadful situation to be in. But there’s something about the interest rate rises that I don’t understand.
What is the thought process of putting up the interest rates. What is it supposed to achieve.It seems an odd way of making people struggle to balance the books.
Fjoughts please and keep politics out of it please

 

[Alan Clifford]

I don’t have a mortgage but am well aware of peoples struggles. Ave been there before and it is a dreadful situation to be in. But there’s something about the interest rate rises that I don’t understand.
What is the thought process of putting up the interest rates. What is it supposed to achieve.It seems an odd way of making people struggle to balance the books.
Fjoughts please and keep politics out of it please

How do higher interest rates help to lower inflation?

Interest rates and inflation are closely linked. Higher rates will help to bring down inflation. But how exactly?

www.bankofengland.co.uk

Although I'm personally unsure that a lot of money "printed" during the covid pandemic wasn't the cause.

 

[PJ87]

How do higher interest rates help to lower inflation?

Interest rates and inflation are closely linked. Higher rates will help to bring down inflation. But how exactly?

www.bankofengland.co.uk

Although I'm personally unsure that a lot of money "printed" during the covid pandemic wasn't the cause.

It was part of the cause but having a poor system for energy hasn't helped and it's why it's not come down

However them blaming it on workings wages rising it's ridiculous. It's been proven it's not that at all.

Suck it up peasants

I'm just glad I'm 4 years into a 10 year fix

 

[GreiginFife]

Could be wrong but I understood that raising interest rates are an attempt to suppress consumer spending which lowers inflation.

Increasing wages counteracts this by giving people the power to keep spending.

Or at least that’s how it was explained to my simple brain by a bloke I used to work with at HSBC.

 

[PJ87]

Could be wrong but I understood that raising interest rates are an attempt to suppress consumer spending which lowers inflation.

Increasing wages counteracts this by giving people the power to keep spending.

Or at least that’s how it was explained to my simple brain by a bloke I used to work with at HSBC.

But it only works on normal inflation not the inflation we see now

Inflation now is caused by energy bills and food bills

People need both of them .

 

[GreiginFife]

But it only works on normal inflation not the inflation we see now

Inflation now is caused by energy bills and food bills

People need both of them .

As it was explained to me, inflation is inflation, all commodities contribute whether it be raw materials or food or energy.

As I say, just how an economist and financial product designer explained it to me.

If you want to take it up with him with your expert view then I can certainly give you his email address.

 

[PJ87]

As it was explained to me, inflation is inflation, all commodities contribute whether it be raw materials or food or energy.

As I say, just how an economist and financial product designer explained it to me.

If you want to take it up with him with your expert view then I can certainly give you his email address.

Been explained to me by a few who work in banking now. They are panicked because their rate riding doesn't work against this type of inflation as it hasn't been seen before in the UK

 

[PJ87]

A fairer way to deal with inflation is to raise taxes

Affects the poorer in society less

Interest rates affect the poor with rent increases

And the economy is a pyramid scheme linked to house prices

But it's unfashionable to raise taxes.

 

[Tashyboy]

Thanks for the reply guys, and the Link Alan. I find it very odd that a minority of the population is struggling with raised interest rates in an attempt to lower inflation esp when the mortgage payers are not to blame for the current inflation rate. That said is there any other way to get inflation down.

just seen post 10 as I posted

 

[PJ87]

Thanks for the reply guys, and the Link Alan. I find it very odd that a minority of the population is struggling with raised interest rates in an attempt to lower inflation esp when the mortgage payers are not to blame for the current inflation rate. That said is there any other way to get inflation down.

just seen post 10 as I posted

Thing is one of the main causes of inflation ATM is

Energy
Food
Flight costs
Holidays

People go on holiday these days it's taken as given. Add £1000 they just pay it

Flight costs .. business still fly around the globe .. don't use teams etc insist on face to face

Food people cut down but how much can you?

Energy? People stream line but have to pay it

And people like yourself you have your pension. Why should you not go on holiday to get inflation down caused by people not getting a handle on it when it's their job.

Yeah good luck with that

 

[Alan Clifford]

On the other hand, our mortgage disappeared because of inflation. No savings, lots of debt, increasing salary. Inflation good.

But now, the best part of my pension has a 5% maximum increase and I have savings rather than investments because I'm old. Inflation bad.

If I could have forseen the level of inflation, I would have pushed myself to by the £19,000 house instead of the £15,000 one.

 

[ColchesterFC]

We took out our 20 year mortgage in October last year on a 2 year fix at a fraction under 4%. We're not due to renew until the end of Feb 2025 (not sure how that works as that will be almost 2 + 1/2 years but that's what the paperwork says). I've done the calculations and based on my current income fortunately we'll be fine with rates up to 8.5%. I've set up my direct debit to overpay by 10% each month which is the maximum allowed which means we would probably be ok if rates went to 9% but I'm hoping that before then rates will drop back down a bit.

With regards to energy bills driving inflation, it's the standing charge that really annoys me. In our house we've only got the heating and hot water that runs off gas with cooking and everything else running off the electric. For 5 out of the last 7 days the standing charge has been higher than our gas usage, which again hits the poorest the most. There's only so much that they can cut down on their gas and electric use but with the standing charge being so high even cutting down on usage still leads to a high bill. Average electric standing charge is 53p per day and 29p per day for gas. That's nearly £300 per year before you've even used and energy.

I've also noticed the change in the food bill for our weekly shop. People can go from Heinz to Tesco branded products or from Tesco to Aldi/Lidl but when they're still being squeezed where do they go from there? There are kids in my sons' school that can't afford to pay for the ingredients for their food tech lessons every week. We're in the fortunate position that it hasn't affected us yet and we've spoken to the school so that we now provide two additional sets of ingredients each week, one for each of the Colch Jnrs lessons, for families that are struggling.

It's annoying to watch companies, across the board, declaring record profits while so many families are struggling and parents are missing meals to make sure that their kids are fed. I'm sure that there is a solution but it would probably cross the political line if we were to discuss them.

 

[PJ87]

We took out our 20 year mortgage in October last year on a 2 year fix at a fraction under 4%. We're not due to renew until the end of Feb 2025 (not sure how that works as that will be almost 2 + 1/2 years but that's what the paperwork says). I've done the calculations and based on my current income fortunately we'll be fine with rates up to 8.5%. I've set up my direct debit to overpay by 10% each month which is the maximum allowed which means we would probably be ok if rates went to 9% but I'm hoping that before then rates will drop back down a bit.

With regards to energy bills driving inflation, it's the standing charge that really annoys me. In our house we've only got the heating and hot water that runs off gas with cooking and everything else running off the electric. For 5 out of the last 7 days the standing charge has been higher than our gas usage, which again hits the poorest the most. There's only so much that they can cut down on their gas and electric use but with the standing charge being so high even cutting down on usage still leads to a high bill. Average electric standing charge is 53p per day and 29p per day for gas. That's nearly £300 per year before you've even used and energy.

I've also noticed the change in the food bill for our weekly shop. People can go from Heinz to Tesco branded products or from Tesco to Aldi/Lidl but when they're still being squeezed where do they go from there? There are kids in my sons' school that can't afford to pay for the ingredients for their food tech lessons every week. We're in the fortunate position that it hasn't affected us yet and we've spoken to the school so that we now provide two additional sets of ingredients each week, one for each of the Colch Jnrs lessons, for families that are struggling.

It's annoying to watch companies, across the board, declaring record profits while so many families are struggling and parents are missing meals to make sure that their kids are fed. I'm sure that there is a solution but it would probably cross the political line if we were to discuss them.

Spot on with this

We can go to about 10% rates before I will have to trim the fat , but I begrudge it.

Paid a small fortune to get the solar project in to protect from these stupid bills

But as you say where do people go from here? Those already buying Tesco own brand stuff or Aldi etc where do they go? They are squeezed

Then you see BP declaring all those profits

It's sickening

 

[chrisd]

I've been through several recessions since the 1970's and raising interest rates is nowadays the Chancellors weapon of choice to restrict the money in people's pockets, and this will bring down inflation, BUT, it also is not just the mortgage rate that goes up, but any businesses borrowing money, they pay more on their bank loan and (probably) have to raise prices, which is inflationary, usually meaning they shed staff to survive. It's a vicious circle

 

[PJ87]

I've been through several recessions since the 1970's and raising interest rates is nowadays the Chancellors weapon of choice to restrict the money in people's pockets, and this will bring down inflation, BUT, it also is not just the mortgage rate that goes up, but any businesses borrowing money, they pay more on their bank loan and (probably) have to raise prices, which is inflationary, usually meaning they shed staff to survive. It's a vicious circle

Nothing to do with the chancellor.

That was taken away by Gordon brown one of the best decisions in history to take power away from government setting rates so banks can act independently from government.

What he can do is raise taxes but then he looks bad and the banks don't.

Brown gives Bank independence to set interest rates

The Chancellor, Gordon Brown, set the seal on a frenetic first 100 hours of activity by the Blair government when he stunned the City and Westminster yesterday by handing control of interest rates to an independent Bank of England.

www.theguardian.com

26 years ago that power went.

 

[Beezerk]

We are 2 years into a 5 year fixed mortgage so very lucky...for now.

 

[SwingsitlikeHogan]

What I’m struggling with is the claim that wage increases will feed inflation through increased spending. In normal times perhaps, but these are not normal times. Surely the truth of the current situation is not that increased income would go on additional stuff, but rather it is going towards paying the basic bills, rents and mortgages - for the stuff upon which our money must be spent - that enables breakfast and tea to be put on the table each day.

Is what is happening more that at the moment individuals and families are either defaulting on payments or running up increased overdrafts; getting arranged loans, or piling stuff on to their credit card. A few will have been drawing on savings but given that a huge % of the population have less than £100 in savings at the end of any month doesn’t suggest much scope for drawing down on savings,

So surely if the increased wages, as are being sought by those in the public sector, go simply to pay the bills, replacing borrowing of one sort or another, then how can that fuel inflation…for basically nothing additional is being bought.

 

[PJ87]

What I’m struggling with is the claim that wage increases will feed inflation through increased spending. In normal times perhaps, but these are not normal times. Surely the truth of the current situation is not that increased income would go on additional stuff, but rather it is going towards paying the basic bills, rents and mortgages - for the stuff upon which our money must be spent.

Is what is happening more that at the moment individuals and families are either defaulting on payments or running up increased overdrafts; getting arranged loans, or piling stuff on to their credit card. A few will have been drawing on savings but given that a huge % of the population have less than £100 in savings at the end of any month doesn’t suggest much scope for drawing down on savings,

So surely if the increased wages, as are being sought by those in the public sector, go simply to pay the bills, replacing borrowing of one sort of another, then how can that fuel inflation…for basically nothing additional is being bought.

This has been proven by the bank of England's own report into it .. I'll have to find where I read it but they admitted that wages were not the reason

Yet they get the blame

Another one is public sector pay is increasing inflation. Thats tosh. The reason we are told inflation is rising is because wages rise and companies are putting costs up to cover wages

News flash public sector wages don't increase the cost of things to the consumer

If I break my leg the NHS don't charge me more

The police don't charge me more for coming to investigate

The fire service don't charge to put out a fire for me

It's all the blame game

Not our fault turn on each other ignore the real issue

 

[cliveb]

A fairer way to deal with inflation is to raise taxes

I was thinking much the same thing earlier today.
It would have the same effect of reducing people's spending power.
It would also improve government income that can be used to fund services.
And by avoiding interest rate rises, the cost of servicing government debt doesn't go up.

But I'm not an economist, so there are probably other subtle factors I don't understand.
Or maybe using interest rates to control inflation is just dogma that has become ingrained?

 

[PJ87]

I was thinking much the same thing earlier today.
It would have the same effect of reducing people's spending power.
It would also improve government income that can be used to fund services.
And by avoiding interest rate rises, the cost of servicing government debt doesn't go up.

But I'm not an economist, so there are probably other subtle factors I don't understand.
Or maybe using interest rates to control inflation is just dogma that has become ingrained?

It's a "tried and tested" method used to deal with normal inflation

However this isn't normal so it isn't and won't work against it

Increasing taxes would be fairer way like you said there to deal with it without hitting the poor but without going too political the Tories are the party of low tax , they have already raised taxes to levels that their back benches are furious with.. they can't afford and refuse to raise interest to deal with the issue.

The problem we have from both sides is everything is short term and political. Nobody has the guts to do what's actually needed for fear of losing the votes