[Finance] What should the government do about the coming base rate mortgage hike time bomb?

[Mustafa II]

800,000 people up for renewal next year.

I personally know people who simply won't be able to afford the increase. They're ones of many I'm sure.

Tax breaks? Government subsidies? Or should they just allow the crisis to play out?

 

[luge]

Which they obviously will do, and many/most will be able to get by. But by having to spend several grand a year more on a mortgage then into the general economy, for the next few years, wont be great for anyone.

In full agreement and will be in that same boat myself - just providing a bit of balance I suppose.

 

[mejonaNO12 aka riskit]

These were the BoE Base Rates at the end of each calendar year, to 1 decimal place. To suggest that home buyers back in the 80s and 90s had it easy really does not stand up.

Jesus. How are people still not getting this.

HOUSE PRICE GOES UP
WAGES DON'T GO UP AS FAST
HOUSES ARE NOW HARDER TO AFFORD.

YES the mortgage rate went up, but it was on a smaller commitment compared to income.

I need a lie down.

https://www.economicshelp.org/wp-content/uploads/2019/12/uk-house-price-to-earnings-ratios.png.webp

 

[Nobby Cybergoat]

If your only retirement income is the state pension then you are correct.

Inflation hits all other retirees harshly. Yes saving rates have increased but only by about a third of the inflation rate. Any retiree with cash savings have seen that effectively devalued

Some annuities do have an inflation clause but many don’t.

Those two factors alone make a significant dent in the real income of retirees without any chance of improving their income in the future.

At least those of working age, realistically or not, do have the hope of future improvement - for retirees any damage done to their savings or incomes is permanent.

Yeh, inflation isn't great if you have savings, but there's no real comparison to people who's mortgage is going up by £100s every month. The spread of pain is completely disproportionate

 

[Nobby Cybergoat]

Jesus. How are people still not getting this.

HOUSE PRICE GOES UP
WAGES DON'T GO UP AS FAST
HOUSES ARE NOW HARDER TO AFFORD.

YES the mortgage rate went up, but it was on a smaller commitment compared to income.

I need a lie down.

https://www.economicshelp.org/wp-content/uploads/2019/12/uk-house-price-to-earnings-ratios.png.webp

They're not getting it because they don't want to.

The Daily Express narrative about avocados soothes the tiny part of their brains that deals with guilt far more effectively.

 

[mejonaNO12 aka riskit]

They're not getting it because they don't want to.

The Daily Express narrative about avocados soothes the tiny part of their brains that deals with guilt far more effectively.

It's frustrating. Because I cancelled Netflix like they told me to, yet with that extra £6.99 in my pocket I STILL can't buy a second home.

 

[Berty23]

Mate, if there's one misapprehension in the entire universe of poorly thought out opinions that's been debunked it's that one.

It's not the rate, it's the effect of the rate .... oh I can't be bothered, anyone want to jump in and help me?

No point. “It was harder in my day” will be written on lots of gravestones. I simply don’t understand why people can’t admit things might have been easier rather than always harder.

I am mid 40s. All but 4 years of my mortgage have been at ridiculously low rates but house prices were already quite high relative to wages. So we stretched ourselves. So it was easier in one sense but harder in another. Far worse for the people in mid 20s now.

In wider life. Tech now makes researching for school work/dissertations much much easier. But then social media must make life more stressful for young people.

It is just different but it seems to be quite a boomer position to say “much harder in my day” about everything. But then weirdly they hark back to it as better times. Can’t be both can it?!

 

[beorhthelm]

These 5 points?
1. Borrowers will be able to switch to interest-only

2. Borrowers will be able to increase mortgage length

3. Borrowers can undo No.s 1&2

4. Six months before lender can start a repossession

5. FCA to advise credit ratings should be unaffected.

good ideas from Reeves, only these are already done by banks. think Hunt and regulator spoke about months ago, there's nothing new there.

 

[seagullwedgee]

Jesus. How are people still not getting this.

HOUSE PRICE GOES UP
WAGES DON'T GO UP AS FAST
HOUSES ARE NOW HARDER TO AFFORD.

YES the mortgage rate went up, but it was on a smaller commitment compared to income.

I need a lie down.

https://www.economicshelp.org/wp-content/uploads/2019/12/uk-house-price-to-earnings-ratios.png.webp

I understand your point. It’s just a little bit preposterous that people are asking those who endured 15%+ mortgage rates in their generation to take more of the burden now to help people who have enjoyed mortgage rates of ~2% long term to pay THEIR mortgages.

 

[KZNSeagull]

Can someone explain this to me as well?

get that the economic orthodoxy here is that we need to cool the economy to get inflation down. So what we’re doing is increasingly interest rates so that mortgage holders and renters will have less money, so buy less, so the price of stuff comes down.

But why is mortgage interest rates the only lever that can be used here? What about taxation? At least then the money goes to the public purse rather than banks.

If we are going to go through a national exercise in impoverishment and deprivation (which could be the epitaph for tory brexit Britain) at least lets spread the deprivation around not just lay it on those who are trying to buy or live in a house? What about those who already own a house, do they not have to contribute anything to this?

There is some logic to increasing taxation (VAT) as you can target it and the exchequer will get more money which could be used for more targeted support, especially as loads of people are on fixed rate mortgages which have not been affected yet. Raising interest rates was the traditional way of tackling inflation, but that was much more effective when most, if not all, people were on variable rate mortgages.

 

[beorhthelm]

Can someone explain this to me as well?

get that the economic orthodoxy here is that we need to cool the economy to get inflation down. So what we’re doing is increasingly interest rates so that mortgage holders and renters will have less money, so buy less, so the price of stuff comes down.

But why is mortgage interest rates the only lever that can be used here? What about taxation? At least then the money goes to the public purse rather than banks.

If we are going to go through a national exercise in impoverishment and deprivation (which could be the epitaph for tory brexit Britain) at least lets spread the deprivation around not just lay it on those who are trying to buy or live in a house? What about those who already own a house, do they not have to contribute anything to this?

the rates affect wider than mortgage payments, other personal loans and business investment. That last one is supposed to be focus, so there's less demand (though so much demand is consumers the theory breaks down).

could use tax but be brave politician to do so, it take money out of economy but not
that business demand. and be awkward to be only paying down debt, not spending on services when rising taxes.

 

[pb21]

I understand your point. It’s just a little bit preposterous that people are asking those who endured 15%+ mortgage rates in their generation to take more of the burden now to help people who have enjoyed mortgage rates of ~2% long term to pay THEIR mortgages.

I’m not asking for anyone to take on any burden, I am asking for people to not dismiss 6%+ interest rates and the impact that will have today in 2023, because they were 15% for a few months nearly 45 years ago in 1979, when everything was different.

 

[Machiavelli]

Can someone explain this to me as well?

get that the economic orthodoxy here is that we need to cool the economy to get inflation down. So what we’re doing is increasingly interest rates so that mortgage holders and renters will have less money, so buy less, so the price of stuff comes down.

But why is mortgage interest rates the only lever that can be used here? What about taxation? At least then the money goes to the public purse rather than banks.

If we are going to go through a national exercise in impoverishment and deprivation (which could be the epitaph for tory brexit Britain) at least lets spread the deprivation around not just lay it on those who are trying to buy or live in a house? What about those who already own a house, do they not have to contribute anything to this?

Note that the government IS and HAS BEEN FOR A WHILE pulling certain levers to target inflation. They're paying those that work in the public sector significantly DEFLATIONARY pay deals but, mind you, they've been doing that for 13 years.
There's a reason why anyone under 40, and increasingly under 50 or 60, will not be voting Tory at the next election. They've been abandoned in droves, although it's been going on for a long while now.

 

[dazzer6666]

I understand your point. It’s just a little bit preposterous that people are asking those who endured 15%+ mortgage rates in their generation to take more of the burden now to help people who have enjoyed mortgage rates of ~2% long term to pay THEIR mortgages.

It’s a bit preposterous to write that without taking house prices and salaries into account.

I moved to Sussex and bought here with negative equity in ‘91. It was just about affordable because even 110% of the house price wasn’t a crippling mortgage. If one of my kids - one is the age I was then - bought literally the same house now they would have to borrow over £400k, the payments alone at 6% would be more than their salary.

 

[KZNSeagull]

the rates affect wider than mortgage payments, other personal loans and business investment. That last one is supposed to be focus, so there's less demand (though so much demand is consumers the theory breaks down).

could use tax but be brave politician to do so, it take money out of economy but not
that business demand. and be awkward to be only paying down debt, not spending on services when rising taxes.

Is vehicle leasing affected by changes in interest rates?

 

[Machiavelli]

There is some logic to increasing taxation (VAT) as you can target it and the exchequer will get more money which could be used for more targeted support, especially as loads of people are on fixed rate mortgages which have not been affected yet. Raising interest rates was the traditional way of tackling inflation, but that was much more effective when most, if not all, people were on variable rate mortgages.

My thinking is that, if you increase VAT, you increase inflation. Yours isn't, can you explain why.

 

[mejonaNO12 aka riskit]

Removed. I can't keep going over it.

 

[KZNSeagull]

My thinking is that, if you increase VAT, you increase inflation. Yours isn't, can you explain why.

It would increase inflation if spending stays the same. The idea is to decrease spending. Raising interest rates isn't doing that at the moment. You would not raise the VAT rate on essentials by the way.

 

[Machiavelli]

It would increase inflation if spending stays the same. The idea is to decrease spending. Raising interest rates isn't doing that at the moment.

OK, I see things differently.
Interest rate rises will reduce spending, and has been doing so for a while. You and I can revisit this in a year and see where we are.
In your VAT increase scenario, all that will happen is it'll transfer money from certain participants within the economy (individuals, families, businesses, etc) to the government. That would be good if the aim is to reduce government debt or to increase government spending, but can't see it being anti-inflationary in the slightest.

 

[Nobby Cybergoat]

the rates affect wider than mortgage payments, other personal loans and business investment. That last one is supposed to be focus, so there's less demand (though so much demand is consumers the theory breaks down).

could use tax but be brave politician to do so, it take money out of economy but not
that business demand. and be awkward to be only paying down debt, not spending on services when rising taxes.

But surely it's a braver politician who'll sit idly by whilst millions of people have to deal with massive rate rises, whilst millions of others are almost entirely unaffected.

And just say the government did decide that they would remove the 2% target from the Bank of England,
and have a conversation about how to use taxation to slow down the economy in way which shares the burden around this more evenly, there is nothing wrong with using that extra tax take to spend on critical public services.


I’d vote for a party which took that approach.

 

[KZNSeagull]

OK, I see things differently.
Interest rate rises will reduce spending, and has been doing so for a while. You and I can revisit this in a year and see where we are.
In your VAT increase scenario, all that will happen is it'll transfer money from certain participants within the economy (individuals, families, businesses, etc) to the government. That would be good if the aim is to reduce government debt or to increase government spending, but can't see it being anti-inflationary in the slightest.

Is spending reducing? I have no idea if it is or it isn't, but whilst so many people are still on their low fixed rate mortgages and are yet to remortgage then it will take some time before these interest rises will work more effectively. Something else needs to be done as well.