[Finance] Base rate increase.

Bold Seagull · Mar 23, 2023

beorhthelm said:
otoh, the rate is now back to the level just before the 2008 Global Financial Crisis, which we could call "normal". its not just harking back to 30yrs ago, we've been through a ~20 period of moderate then very low rates and loose monetary policy that has fuelled asset prices. we were supposed to be warned (i know i was your mileage may vary) of the impact of rate increases to our borrowing.

As with life it is how much slack people factor into their cost of living. Being warned is one thing, but have a pandemic, cost of living crisis, fuel crisis, coupled with interest rates not slowly working their way back to a norm, but pretty much jumping 4% within a quarter isn't a financial shock many can deal with or necessarily prepare for - historically there hasn't been many jumps of this magnitude in such a short space of time.

This base rate rise which is now 4% over 5 months is a significant shock. This is comparable to the 1988 base rate leap when it went from 8% in June 1988 to 13% by Nov 1988, a 5% base rate rise in 5 months. Hopefully the comparison ends there, because it rose another 2% by Oct 1989.

From that high point of 15% in Oct 1989, interest rates pretty much fell, or at least didn't rise significantly for the next 33 years until this point. People are now up against history in facing the end of a mortgage deal and looking at a 3-4% increase, especially coupled with cost of living etc.

Uncle C · Mar 23, 2023

Maybe people with increasing mortgages should remind themselves how much their house has risen in value over that period. Perhaps I just imagined many of the same people boasting incessantly over the last decade about how much profit they have made. Now they want us to feel sorry for them.

Tom Hark Preston Park · Mar 23, 2023

Uncle C said:
Maybe people with increasing mortgages should remind themselves how much their house has risen in value over that period. Perhaps I just imagined many of the same people boasting incessantly over the last decade about how much profit they have made. Now they want us to feel sorry for them.

How does a paper rise in property prices help if you're struggling to meet your monthly mortgage payment?

Bold Seagull · Mar 23, 2023

Uncle C said:
Maybe people with increasing mortgages should remind themselves how much their house has risen in value over that period. Perhaps I just imagined many of the same people boasting incessantly over the last decade about how much profit they have made. Now they want us to feel sorry for them.

I imagine it's the company you keep rather than a general consensus.

nicko31 · Mar 23, 2023

Tom Hark Preston Park said:
How does a paper rise in property prices help if you're struggling to meet your monthly mortgage payment?

Worth adding those that bought recently will be mortgaged up and may not have been much increase in prices at all. Now they have high debt levels with higher rates

Property purchase in this country is often down to luck when you were born, the luckiest I think are those that entered the market 1993 to about 2005. Low prices, preceded by a long period of cheap money and never had to experience super high rates

southstandandy · Mar 23, 2023

sydney said:
we got paid decent money back then

Not all of us. I used to work 2 jobs back then working 82 hours a week between the two. Granted I only did this for 15 years but it's what I had to do to afford the mortgage.

Mellor 3 Ward 4 · Mar 23, 2023

Uncle C said:
Maybe people with increasing mortgages should remind themselves how much their house has risen in value over that period. Perhaps I just imagined many of the same people boasting incessantly over the last decade about how much profit they have made. Now they want us to feel sorry for them.

Remember that YOU were the one who a few years ago predicted a MASSIVE house price drop - how did that go?

WATFORD zero · Mar 23, 2023

The problem is that the main drivers behind the inflation figure, increasing energy prices, increasing food prices and increasing labour costs won't be immediately affected by interest rate rises but that is the only tool available to the BOE.

Until the reasons behind those three drivers are addressed I can't see this issue going away and Britain becoming even more of an outlier as this Government's priorities certainly seem to lie elsewhere :shrug:

Why is UK inflation higher than other countries?

https://www.bbc.com/news/business-65037292

Guinness Boy · Mar 23, 2023

Lots to agree with on this thread, particularly @Westdene Seagull @Hotchilidog @Berty23

Managed to catch the start of the World at One at lunchtime today. They had Danny Blanchflower on making a compelling case for decreasing rates again and a story about how high street banks and other lenders put up mortgages the second the base rate rises but have left interest on savings accounts at ~1%.

It's an absolute disgrace and will do no more for bringing down inflation than me taking the dog for a walk.

Seagull27 · Mar 23, 2023

Uncle C said:
Maybe people with increasing mortgages should remind themselves how much their house has risen in value over that period. Perhaps I just imagined many of the same people boasting incessantly over the last decade about how much profit they have made. Now they want us to feel sorry for them.

I bought my house 3 years ago, how much has the value increased in that time? Not much.

chickens · Mar 23, 2023

Berty23 said:
To be fair to current youngsters (I am 43 and been with my wife since uni so we bought young and we are very lucky that we have a nice enough 4 bed and only about 60k left on the mortgage so a few more years).

Relatively close to me is leamington spa. A three bed house https://www.rightmove.co.uk/propert...&utm_source=copytoclipboard#/&channel=RES_BUY you are looking at about 250k entry.

Two people who want to start a family might find it pointless going for 2 bed due to expense of moving so start at bottom end 3. 250k means that if they are graduates on what 25k each then that is five times their combined income. However. To get on the property ladder without the help of the bank of mum and dad they need a 25k deposit.

Renting a 1 bed flat is about 800 quid a month. Council tax, bills. Food etc etc. their take home will be about 40k a year combined. So about 3330 quid a month. Taking out rent and bills how much are they left with? Then how do they get to work? Bus pass or train? All more cost. So how long would it take to save 25k needed for a deposit?

I just don’t see how the maths works.

The maths doesn’t work, and post financial crash, the policies enacted have helped those with capital, as opposed to those reliant on wages for their income.

QE inflated asset prices (a win for capital) - meanwhile since the 2008 financial crisis real incomes stagnated.

Wage growth should be one of the top priorities for this government, despite the fact it will hinder (in the short term) efforts to control inflation.

Alternatively, taxation needs to be far less focused on income, and far more focused on capital gains. The social contract around work has been broken. It’s supposed to reward participants, not leave them stressed and anxious over how they will make ends meet.

Barham's tash · Mar 23, 2023

Westdene Seagull said:
THIS .... with bells on. Unless the BoE really think hiking interest rates up will lower energy costs which are one of the main inflationary things

It’s the continuation of the energy price cap bizarrely which is making them consider further tightening - as cited by Gov. of the BOE suggested last month at least.

Once the wholesale price falls below the cap - expected to be in July on current trends - then that pressure may be released.

The decision is an absolute ball ache for them atm that’s for sure.

The Grockle · Mar 23, 2023

Our house has jumped up in value by about 75k in the last two years but it doesn't mean a great deal when we've just had to remortgage at a rate that represents an extra £350 a month in payments.

With a household income of 80k I suspect we are better off than many but with a huge rise in utilities, my wage stagnating post covid and other financial commitments we aren't a million miles off struggle.

I know people who are teetering on the edge and are having to remortgage in the coming months, it's a pretty worrying time for many.

beorhthelm · Mar 23, 2023

chickens said:
...
Alternatively, taxation needs to be far less focused on income, and far more focused on capital gains. The social contract around work has been broken. It’s supposed to reward participants, not leave them stressed and anxious over how they will make ends meet.

reason for that is income is predictable and necessary, captial gains are unpredictable and discretionary. gains are only realised on selling, or gain this month might be a loss the next.

mejonaNO12 aka riskit · Mar 23, 2023

Uncle C said:
Maybe people with increasing mortgages should remind themselves how much their house has risen in value over that period. Perhaps I just imagined many of the same people boasting incessantly over the last decade about how much profit they have made. Now they want us to feel sorry for them.

chickens · Mar 23, 2023

beorhthelm said:
reason for that is income is predictable and necessary, captial gains are unpredictable and discretionary. gains are only realised on selling, or gain this month might be a loss the next.

I agree with you that the regularity gives taxation on income a level of predictability that allows government to make semi-accurate forecasts, but capital can’t continue to have absolutely everything it’s own way.

At present, who benefits from innovation? 100% of the benefit goes to the employer and shareholders, 0% to the employees. So, capital.

Who is being benefitted by the removal of the cap on taking cash from private pensions? Those with capital.

Who benefits from lower tax rates, disproportionately those with capital.

Who benefits from Quantitative Easing? Capital.

Who benefits from Universal Credit paying private rents and low-paid employees? Capital.

Meanwhile, since 2008 our wages have (in real terms) dropped significantly, yet capital continues to enjoy tax break after tax break while our standard of living and life expectancy continues its decline.

We are being mugged by capital in this country, and I would far rather some corrective action were taken willingly by those who are benefiting from the status quo, than it become a highly damaging conflict pitting employers against their employees.

Nobby · Mar 23, 2023

Uncle C said:
Maybe people with increasing mortgages should remind themselves how much their house has risen in value over that period. Perhaps I just imagined many of the same people boasting incessantly over the last decade about how much profit they have made. Now they want us to feel sorry for them.

You don’t make any profit unless you move out!!

beorhthelm · Mar 23, 2023

chickens said:
I agree with you that the regularity gives taxation on income a level of predictability that allows government to make semi-accurate forecasts, but capital can’t continue to have absolutely everything it’s own way.

At present, who benefits from innovation? 100% of the benefit goes to the employer and shareholders, 0% to the employees. So, capital.

you've ignored the employees given jobs, then the general population benefits from the innovation and products. and ignored the flip side, the duff innovation or unsuccessful products, leading to losses on capital risked. doesn't have its own way.

chickens · Mar 23, 2023

beorhthelm said:
you've ignored the employees given jobs, then the general population benefits from the innovation and products. and ignored the flip side, the duff innovation or unsuccessful products, leading to losses on capital risked. doesn't have its own way.

I’m 100% pro jobs and working, but I’m also 100% behind work paying.

Jobs are worthless if they’re not paying employees enough to pay their way in the world and save for emergencies, the odd luxury, and retirement.

Work is not an end in itself, it’s a societal function that is supposed to lift us from poverty and give us a sense of worth and wellbeing.

Doing a job that feels futile for a wage that doesn’t cover living costs fulfils none of the functions that employment is supposed to fulfil, and I’d argue is at least as psychologically damaging as long-term unemployment.

I repeat my view that at present, capital is entirely running the show, with every benefit afforded to it, and none of the benefits of innovation being enjoyed by employees who have their wages topped up by taxpayers, because even the basic cost of private labour is being borne by the taxpayer instead of those who benefit from the labour.

Machiavelli · Mar 23, 2023

Hotchilidog said:
I must be missing something here. Inflation is not being driven by a consumer spending boom, inflation has been caused by increased supply side costs, notably energy costs and the war in Ukraine. Interest rates have no impact on these factors, in fact by increasing the debt to those who hold a mortgage the BoE is actually increasing the effects of inflation, this seems utterly barmy to me.

On the flip side those who make their income from sitting on assets will continue to coin it whilst those of us who actually work for a living will find our incomes squeezed yet again.

Yes, you're missing the fact that inflation is being driven by workers asking for 'pay rises', particularly that pesky lot in the public sector ...

... or so we've been told.

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Why is UK inflation higher than other countries?