[Finance] 'Possible' BofE Base Interest Rate Rise this Thursday .....

[Bold Seagull]

When Mrs Jakarta and I sat down over 20 years ago and had a good hard look at our in goings and outgoings since we were buying a house in RH20. We were offered a £500K Mortgage but we took one one of £250K and bought a smaller property.

I went back offshore & worked my butt off to pay it down. 1990's interest rates would make youngsters eyes water.

So no I don't have too much sympathy for the entitled generation that can't cope with 1-2% bank rates...

Is it a great view from up there?

 

[LamieRobertson]

Interest Rates are incredibly low and puffing them up by even 1 per cent will make little difference to peoples lives, unless they have hugely overexstended themselves in terms of property etc...

 

[LamieRobertson]

There are loads of people that have done exactly that as a way of getting on the property ladder.

…and we all know the ‘rent’ ladder isn’t exactly cheap and plentiful

 

[jakarta]

Yep - and you had the pandemic, the unprecedented rise in energy prices, the increase in NI ...... oh, wait.

Pandemic: got SEISS

Energy: Got house insulated to modern standards when we had extensions built. Locked in an Energy provider a couple of years ago on a fixed tarriff.

NI: I'm still working, the NI increase is actually piffling when you look at it.

Sorry that we have looked at our finances over the years and have managed them...

 

[Dick Swiveller]

Pandemic: got SEISS

Energy: Got house insulated to modern standards when we had extensions built. Locked in an Energy provider a couple of years ago on a fixed tarriff.

NI: I'm still working, the NI increase is actually piffling when you look at it.

Sorry that we have looked at our finances over the years and have managed them...

Dear Christ. So have I and a lot of other people. But we don't have your stinking attitude. What are you doing with all of those ladders you are pulling up, Jack?

 

[beorhthelm]

Yep - and you had the pandemic, the unprecedented rise in energy prices, the increase in NI ...... oh, wait.

this isnt the first time in history there's been inflation, an energy price surge, or "cost of living crisis". after two decades of low interest rates there was always going to be rises at some point in the future, artifically suppressd for long enough. anyone not planning for that is being irresponsible.

 

[jakarta]

Dear Christ. So have I and a lot of other people. But we don't have your stinking attitude. What are you doing with all of those ladders you are pulling up, Jack?

Enjoying where I live but continuing to work, as I have have done for over 45 years and still paying a lot of Tax and NI so reckon I have an opinion ?

 

[Dick Swiveller]

this isnt the first time in history there's been inflation, an energy price surge, or "cost of living crisis". after two decades of low interest rates there was always going to be rises at some point in the future, artifically suppressd for long enough. anyone not planning for that is being irresponsible.

I bought a new house 20 years ago for £95000. That same house would now cost £300000+. Where are you suggesting kids today live and how are they supposed to pay for it? If it was just budgeting for a mortgage increase then you would have a point. But they are stretching themselves to the point that they will struggle to cope with an increase in tax, 50% increase in energy, and households goods outstripping pay increases.

 

[Dick Swiveller]

Enjoying where I live but continuing to work, as I have have done for over 45 years and still paying a lot of Tax and NI so reckon I have an opinion ?

You have an opinion and have stated it. As have I on what I think of your opinion. That is how free speech works.

 

[Iggle Piggle]

So no I don't have too much sympathy for the entitled generation that can't cope with 1-2% bank rates...

It always makes me laugh that the current lot are the "entitled generation" when it's normally said by someone who had Free University education, Final Salary Pension scheme and cheap house prices.

 

[usernamed]

Thank you - nice comprehensive answer. So apologies, additional questions. Thirty Five years ago I scraped a pass in my A Level Economics so what I'm about to say might be completely wrong. I thought the purpose of interest rate increases was to encourage people to save rather than spend. Thus prices would go down to encourage people to buy. I know, very basic description ! Price rises this time ( i.e. inflation ) is mainly due to anything governments or central banks can control - increases in fuel, basics using sunflower oil, energy etc - because of lack of supply ? Partly but not completely down to the war ? How does forcing many people to pay more for their mortgage etc mean they will save rather than spend when ALL their costs have gone up ? Surely most people will have less to be able to put into their savings account.

My understanding (mainly gained from blindly reading around the subject trying to understand 2008’s cluster****) is below. It’s such a massive subject and I’m writing between jobs, so apologies for rambling:

Historically, low interest rates were supposed to encourage businesses to borrow and grow, and individuals to spend. High interest rates were supposed to encourage consumers and businesses to wind their necks in and save, cooling consumer spending and (over time) inflationary pressures.

The issue with that is that from the 1980s onward businesses and consumers have become far more debt-financed (and have remained so)

In the past, a sensible individual would see saving rates higher than inflation and would say “I’ll put my money in a savings account and it will grow.” The economy would cool a bit, hopefully slow down without the wheels falling off, and inflation would usually slowly reduce. Then, consumers would have money in their pockets when inflation had cooled, and rates could be reduced to stop saving and encourage spending.

When using debt to finance business and individual life became increasingly normalised, the paradigm changed. Because the cost of servicing debt increases with interest rate rises, the consumer or business is not putting their excess money into any form of savings or consolidation, they’re using it to service increased debt costs.

Historically that would just be the mortgage, but many people now have multiple credit cards, and even some loans are still at variable rates. As such, a major tool that has worked for economists now has a different effect, in that even coming out of a period of high interest rates, consumers haven’t built up a pot of money to spend, they’ve just (hopefully) continued affording to service existing debt.

Similarly for business, many modern takeovers are financed by taking out loans on the business being bought, (leveraged buyouts) they are almost entirely debt financed. If their projections didn’t forecast increased interest rates, they can find themselves in trouble when it’s time to refinance the debt.

Inflation is feared by governments for a variety of reasons. The most obvious is that your pound buys less than it did before. (Unpopular) But also it makes economies less predictable, people hoard, bring purchases forward or forgo them, and forces people to make do and mend.

Norman Lamont once stated “Rising unemployment and the recession have been the price that we've had to pay to get inflation down. That is a price well worth paying.” (It wasn’t a popular statement) - there’s no indication Rishi feels any differently though.

Inflation reduces wealth as well as income, and is therefore more unpopular than tax rises for those with wealth, as they can’t dodge inflation as easily.

The government has limited or no control over most of the factors that have caused inflation. Nor have the British population who are just trying to get along. What the government needs to consider is taking action on the things that are under their control, to mitigate the worst effects of this inflation and corresponding interest rate rises.

So sorry for the state of this post.

 

[LamieRobertson]

When Mrs Jakarta and I sat down over 20 years ago and had a good hard look at our in goings and outgoings since we were buying a house in RH20. We were offered a £500K Mortgage but we took one one of £250K and bought a smaller property.

I went back offshore & worked my butt off to pay it down. 1990's interest rates would make youngsters eyes water.

So no I don't have too much sympathy for the entitled generation that can't cope with 1-2% bank rates...

I remember quite well 1990’s interest rates …working in the commercial property recovery section of what is now a bank …with base rates on one day being raised 3% to 15% …that really did stuff quite a few people, were they really responsible for that…hmm i doubt it…and there were some pretty crap lending practises …..different times and I’m not sure you can compare ..and let us not be so narrow in our thinking that base rate increases are just all about mortgages ..their effect is much wider on peoples pockets and industry/the economy and has been said they are normally used as an inflationary weapon to curb demand blah blah ..current inflation is being stoked by many other factors ….you dismiss NI increases as piffling ..I’d say they are just one piece of a jigsaw of increasing mortgages, rents, fuel costs, heating costs, food costs etc etc …..have a great day

 

[usernamed]

It always makes me laugh that the current lot are the "entitled generation" when it's normally said by someone who had Free University education, Final Salary Pension scheme and cheap house prices.

This. A thousand times this. People who came up through a functioning system sneering at those who are having to fight for every basic opportunity we took for granted. Graceless and charmless at best.

 

[dazzer6666]

When Mrs Jakarta and I sat down over 20 years ago and had a good hard look at our in goings and outgoings since we were buying a house in RH20. We were offered a £500K Mortgage but we took one one of £250K and bought a smaller property.

I went back offshore & worked my butt off to pay it down. 1990's interest rates would make youngsters eyes water.

So no I don't have too much sympathy for the entitled generation that can't cope with 1-2% bank rates...

Similar here (our mortgage was a huge % of my salary at one point, and the rate was well into double figures) but I've got a bit more sympathy - firstly the lenders haven't helped by calculating 'affordability' without including potentially significant interest rate rises (and because rates are so low, even a point or two is significant, particularly for those on interest-only mortgages), secondly (around here at least) property prices are ridiculous and without eyewateringly-large (and often interest-only) mortgages kids can't buy anywhere, and thirdly the pandemic/war/etc impacts have created a 'perfect storm'.

 

[zefarelly]

Absolutely. Institutions literally fall over themselves with eagerness – as this email shows – to pass increases onto debtors. Meanwhile there's a deafening silence when it comes to reciprocating things for investors and savers.

Like oil/petrol prices . . . and no doubt all our energy.

OPEC = CARTEL

UP like a ROCKET

DOWN like a FEATHER.

 

[studio150]

It always makes me laugh that the current lot are the "entitled generation" when it's normally said by someone who had Free University education, Final Salary Pension scheme and cheap house prices.

But I had to pay BIK on my company mortgage rate its not all plain sailing.

 

[zefarelly]

I remember quite well 1990’s interest rates …working in the commercial property recovery section of what is now a bank …with base rates on one day being raised 3% to 15% …that really did stuff quite a few people, were they really responsible for that…hmm i doubt it…and there were some pretty crap lending practises …..different times and I’m not sure you can compare ..and let us not be so narrow in our thinking that base rate increases are just all about mortgages ..their effect is much wider on peoples pockets and industry/the economy and has been said they are normally used as an inflationary weapon to curb demand blah blah ..current inflation is being stoked by many other factors ….you dismiss NI increases as piffling ..I’d say they are just one piece of a jigsaw of increasing mortgages, rents, fuel costs, heating costs, food costs etc etc …..have a great day

I got on the ladder early '92 via a repro, earning less than £10k a year was hard . . . somehow, with a lodger and a part time job on occaision, or fixing stuff for people I rode it out until I got promoted and earnt more. Nothing handed on a plate.

I had an endowment originally, got out as soon as I could afford to. ('99) it wasn't until I was in my late 20's I wasn't on the line at the end of every month, no holidays, no car, then again with a young family in a bigger house a few years later it was hard. . . . only now my lads older and we're both working again are we comfortable . . .although our outgoings have hiked markedly recently. Fortunately not sweating but it has made a difference.

There will be a lot of people in the shit in a year or less. Big mortgages to service on top of personal debt and contractual obligations ( cars etc) add to that food and bills . . . . we're forking out over £200 a month more than 6 months ago already. . . . the country is in a mess.

One thing I've noticed is the younger generation seem to want everything new all the time, whether its shiny shiny or fashion . . . . . . having recently renovated our house we struggled to offload some perfectly good used house stuff, furniture, appliances and the like . . . no takers for hand made wooden kitchen doors in perfect condition for example, nor a pefectly good used vileroy and boch sink. . . . I used reclaimed stuff in my old cottage 23 years ago . . . . .its back on the market and still there!

 

[pb21]

When Mrs Jakarta and I sat down over 20 years ago and had a good hard look at our in goings and outgoings since we were buying a house in RH20. We were offered a £500K Mortgage but we took one one of £250K and bought a smaller property.

I went back offshore & worked my butt off to pay it down. 1990's interest rates would make youngsters eyes water.

So no I don't have too much sympathy for the entitled generation that can't cope with 1-2% bank rates...

Over 20 years ago was, well over 20 years ago, a lot has changed since then. In addition, presumably if you were offered a £500k mortgage over 20 years ago, you weren't exactly struggling, many were then and are now, including those who work/ed their butt off.

 

[Paulie Gualtieri]

So, yesterday morning I get an email from my mortgage lender saying that the base interest rate had just been increased. Few hours later an apology email saying the email was a error and that the BofE doesn't meet until Thursday this week.

I'm a massive cynic generally and to me this looks like the decision is made in advance of the BofE meeting and communicated to mortgage lenders ahead of the meeting supposedly to make the decision. I know it doesn't make much difference as if the rate goes up it goes up and millions pay more. Am I being too cynical ? Was it a genuine mistake ? I guess we find out tomorrow ! If true it's nice of the BofE to add to the cost of living crisis.

Working for a bank I can confirm we do not get pre notified 100%

I wish we did!!

 

[Daddies_Sauce]

Robert Peston just tweeted - https://twitter.com/Peston/status/1521896611143733251