Increasing the interest rate to 5%, is this really the fairest way to slow inflation?

Doodledog

I seldom agree politically with GSM, although we do agree on other things, but I don't think she is rude in her responses.

... I second that.

Back in the day you could get 100% mortgages - even 110% mortgages which is why some folks came unstuck . Today you have to have a huge deposit , maybe £50k+, which is a more than years salary for some -I don’t feel you can compare the two scenarios - “we were so frugal unlike todays youth “ - is smug and unhelpful.

Doodledog

I'm sure that when VAT came in (I was a child) it was genuinely charged only on 'luxury' goods, but that is no longer the case. I don't see it as a 'fair' tax at all.

I don't believe VAT to be 'unfair'.

Quote: "some goods and services are subject to VAT at a reduced rate of 5% (such as domestic fuel) or 0% (such as most food and children's clothing)."

Many important items purchased, fuel, food, children's clothing are low/exempt - most other items subject to VAT. Just a tax, we all pay.

Dickens

Doodledog

I seldom agree politically with GSM, although we do agree on other things, but I don't think she is rude in her responses.

... I second that.

Third.

I don’t know what the answer is but I do feel guilty that we are getting decent rates on our savings and a 10% plus increase in pensions while young families are struggling.

We struggled in the 80s when the mortgage rate went up overnight and had to go from working part-time to full time to cover the extra cost. That’s not even an option now with most women working full time already.

vegansrock

Back in the day you could get 100% mortgages - even 110% mortgages which is why some folks came unstuck . Today you have to have a huge deposit , maybe £50k+, which is a more than years salary for some -I don’t feel you can compare the two scenarios - “we were so frugal unlike todays youth “ - is smug and unhelpful.

Completely agree, vegansrock. My parents' life was full of deprivation and worry but they never would have wanted that for their children and were genuinely pleased to see our lives improve compared to theirs. The 1930's were very difficult times, so were the 1980/90s and so are the 2020's, but they are all difficult in different ways and perhaps it's not helpful to compare them?

Great thread, thanks to the regulars.
Poppyred why do you feel guilty about your savings rate going up? Your capital is still being eroded by inflation. Savers received diddlysquat for years, and the same thing applied, ie the return didn't keep up with even the lowish inflation. Investments did okay, but that is no longer the case. So anyone with savings is getting poorer.

I don’t know why you feel guilty Poppyred. For many years the interest rate on mortgages has been extremely low whilst as Romola says, interest on savings was negligible, forcing many retired people to eat into their savings. And remember 10% of the state pension is 10% of not a lot.

vegansrock

Back in the day you could get 100% mortgages - even 110% mortgages which is why some folks came unstuck . Today you have to have a huge deposit , maybe £50k+, which is a more than years salary for some -I don’t feel you can compare the two scenarios - “we were so frugal unlike todays youth “ - is smug and unhelpful.

I agree. A lot of comments about 'the youth of today' are hard to see. It was easier to be frugal when there was less to buy, and expectations were lower. Also, as I've said before, I don't think that living in a house constitutes 'working hard' for the profit on it.

Something needs to be done about the housing situation; but I'm not sure that keeping interest rates low is the answer. Building more houses and controls on rents seem to me to be more sensible approaches. For one thing, low rates on savings make it more difficult to get a deposit together, as both of my children are finding. Also, increasing supply to match demand will reduce prices for homebuyers and landlords alike. The whole economy shouldn't be run around house prices, surely?

vegansrock

Back in the day you could get 100% mortgages - even 110% mortgages which is why some folks came unstuck . Today you have to have a huge deposit , maybe £50k+, which is a more than years salary for some -I don’t feel you can compare the two scenarios - “we were so frugal unlike todays youth “ - is smug and unhelpful.

If you are referring to me I don't think I was saying that we were so frugal - what I did say was that the things that young buy did not exist when we were young. If they had been I'm sure many of us would have bought some of them.

When I was buying a house back in 1979 we had to have a deposit of 20% which was £3700. I was self employed by then and half of the deposit came from my tax savings and the other half was borrowed from my Father. He was able to lend me this because his Mother had recently died and so he had an inheritance. In the end he lent us £3000 so that I could pay my tax.

All of us are frugal in different ways. Ours was buying furniture for our house 2nd hand and my DH made all our built in furniture. He also did all the renovations apart from re-pointing. (nothing worse than bad re-pointing)

My spendthrift moments were buying shoes and handbags. I shopped regularly at Russell & Bromley but the last time I walked past one of their shop windows I was amazed at the prices and certainly could not afford to shop there now. In fact I stopped buying fancy shoes and bags after we moved to Suffolk in the mid eighties. Then we moved into a period of poverty again.

I have said it before and I will say it again. Every older generation considers that the younger generation are wasteful spendthrifts. It happened in my generation and my son's and no doubt my parent's and grandparent's.

In fact I have a 19th century book which is bound copies of a woman's magazine, and I remember reading an article there on a similar theme. In every generation and every age group, some people are spendthrifts and others are misers.

Our standards of what is acceptable changes. When we bought our first house, central heating was an optional extra. Now no house would be built without it. I am sure at some time inside wcs and bathrooms were considered an unwarranted luxury.

DaisyAnneReturns

DiamondLily

I'm paying tax on all my pensions. If any increase is needed, I'd sooner it was on VAT - essential goods aren't taxed, and we have a choice whether to buy the rest.🙂

Of course you would rather it was VAT. That way the poorest pay the highest proportion of their income should they ever dare to want something others don't consider essential.

Why not kick them when they are down? It's been happening for the last 13 years!

Yes, well many of us have been poor. It is what it is.🙄

Germanshepherdsmum

I don’t know why you feel guilty Poppyred. For many years the interest rate on mortgages has been extremely low whilst as Romola says, interest on savings was negligible, forcing many retired people to eat into their savings. And remember 10% of the state pension is 10% of not a lot.

Yes, savers have been penalised for years propping up artificial low interest rates for those with a mortgage.

It's about time we got a better return on savings/investments.

Good post, MOnica

I'm puzzled by vegansrock's statement that 'back in the day' people could get 100% or even 110% mortgages. Back in what day?

Wasn't that one of the things that precipitated the Global Financial Crisis? Uncontrolled credit?

Back in my day you'd have been lucky to get a 90% mortgage, let alone even more. 20% deposit and max 3x salary was about standard.

DiamondLily

Germanshepherdsmum

I don’t know why you feel guilty Poppyred. For many years the interest rate on mortgages has been extremely low whilst as Romola says, interest on savings was negligible, forcing many retired people to eat into their savings. And remember 10% of the state pension is 10% of not a lot.

Yes, savers have been penalised for years propping up artificial low interest rates for those with a mortgage.

It's about time we got a better return on savings/investments.

Hang on!

Interest rates have been low because inflation has been low. So how come people have had to 'eat into their savings'? It can't have been because of inflation...

Shouldn't they have manged better and not been spendthrift..

Ok, well whatever. I'm glad that I'm finally getting some sort of return on my savings and investments.

I'm not sure the inflation figures were entirely accurate either 🙄

MaizieD when exactly are you counting periods of low inflation? Energy and food prices have been rising steadily and if these could be lowered, surely interest rates could go down also?

Inflation has been rising for ages, but core inflation is usually buried under government spin.

It's all smoke and mirrors. 🙄

When looking at the housing market and considering interest rates, playing with interest rates will not help people buy houses.

The housing market is based on supply and demand and the price of houses is based on how much people can afford or are willing to pay to own the roof over their head.

On a repayment mortgage the monthly payment includes interest and capital repayment. If interest rates are high then less capital can be repaid each month and prices will fall - there is already talk of prices dropping by as much as 10%. The reverse applies if interest rates are low. Similarly when lenders became willing to consider 2 incomes when house buying, the price of houses gradually rose to match the larger sum that could be spent on housing each month.

You do not see large estates of empty houses that haven't sold because people cannot afford them. Now and again the market for existing houses will slow down because of sudden national economic reasons (2008, for example), or local reasons like the shutting down of a large employer, but generally, demand matches supply, matches available income for new buyers.

The problem that arises when interest rates are rising is with existing house owners who took out mortgages when interest rates were low and now have to pay more.

But again that problem will mainly be with those who bought houses in the last 5 years because, with most mortgages being repayment mortgages you are paying off capital each month, very little at first, but if you have been in a house for 10 years or more, not only will you have paid less for your house than those who bought recently, you will be paying interest on your original mortgage less the capital you have already paid. so the rise will not be high.

The ones having the real problem with these recent interest rises are first time buyers who have bought in the last 5-10 years.

MaizieD I'm puzzled by vegansrock's statement that 'back in the day' people could get 100% or even 110% mortgages. Back in what day?

Back in my day you'd have been lucky to get a 90% mortgage, let alone even more. 20% deposit and max 3x salary was about standard.

I'm confused as well.

Our home was purchased over 60 yrs ago, with a 10% deposit, 3.5x salary (£500 yearly salary) on 5% mortgage.

100% mortgages for first time buyers were common in the 90s and early 2000s, fell out of availability after the crash in 2008, but are now available again. I don’t know anybody who had one, but I can see that if you are a renter with a family so no opportunity to save a deposit, they have a place provided you can get a good deal and aren’t paying a huge amount more on a mortgage than you would be renting.

DiamondLily

Inflation has been rising for ages, but core inflation is usually buried under government spin.

It's all smoke and mirrors. 🙄

Have a look at the annual inflation rates for the last decade

www.inflationtool.com/rates/uk/historical

100% mortgages caused huge problems for many. They started with no equity and their mortgage debt quickly rose to more than they had borrowed. They gambled on a sufficient rise in house prices staving off negative equity. As for those who borrowed 110% - it should never have been allowed, but it was.

Yes, I agree. A 100% mortgage will be a life saver for some renters who cannot get a deposit together.

I'm sure I read recently that one building society was planning to offer 100% mortgages to renters, Casdon. I think on the basis that repayments would be about the same as their current rental payments.