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

It was ever thus Doodledog. You will remember when people with mortgages were hit before, not to mention when people with mortgages weren’t allowed to get a second mortgage (not a second home, just to move home) which made life almost impossible for people like myself when we had to relocate to another area for work but weren’t allowed a mortgage, only first time buyers were allowed to borrow. I thought it was very unfair at the time, we had to get a mortgage from a French bank which we were lucky enough to do, but my point is it always seems to be the people with mortgages who are hit. I don’t agree with it. I believe it to be unfair on one group of people.

Yes, I dare say. I've been there, and it was grim.

I don't know the answers - it's galling to think that inflation is at least in part caused by something I vehemently didn't want, and I wish could be reversed, too. It's wrong that any group should be expected to pay a disproportionate proportion of the cost of that.

Doodledog

I suppose that not everyone has a mortgage. There are renters, those who can't afford mortgages and those who have paid theirs off. Also, those at the end of a mortgage term will be less affected than those at the beginning. If they all get more returns on savings and have the confidence to spend, maybe that is more of a boost to the economy than mortgage holders doing so.

It's a divided country and mortgage holders (and renters whose landlords will put up rents) are considered to be collateral.

Thanks Ronib. I'll take a look.

OurKid1

I wish that someone could produce a simple guide (for the likes of me) who can't understand why raising mortgage rates, so people have less money to spend, is going to get a handle on inflation. Surely, if people spend less, then companies will go bankrupt due to lack of sales? My knowledge of economics is only slightly more than not a lot, so can someone please explain?

OurKid1 the Bank of England has an online guide…. Something about the consumer price index….. clear as mud!

I suppose that not everyone has a mortgage. There are renters, those who can't afford mortgages and those who have paid theirs off. Also, those at the end of a mortgage term will be less affected than those at the beginning. If they all get more returns on savings and have the confidence to spend, maybe that is more of a boost to the economy than mortgage holders doing so.

I wish that someone could produce a simple guide (for the likes of me) who can't understand why raising mortgage rates, so people have less money to spend, is going to get a handle on inflation. Surely, if people spend less, then companies will go bankrupt due to lack of sales? My knowledge of economics is only slightly more than not a lot, so can someone please explain?

Doodledog 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.

I tend to agree with building more housing, I believe rental payment based on what the market will bear typically works well.

The City is a big contributor to our wealth. The expertise of the finance sector is vital to the growth of other industries.

I didn’t raise the point about 100% mortgages DaisyAnne but I was responding to the other post. I don’t think anyone, including myself, is saying that people who took out these mortgages are responsible for inflation, either now or in the past. It was actually some time ago anyway. I think it was grossly irresponsible of the lenders though.

The cause of inflation in my humble opinion is that the energy crisis has caused the inflation we see now. I’m concerned too that supermarkets may be profiteering by raising prices rather more than necessary. Whilst I think the British government have given a lot of help to the British public, I also believe they could have done more, not by giving higher handouts, but by regulating the prices that the energy companies charge. I also believe that the drive to net zero is a vanity project by the government and that whilst long term it is a worthwhile aim, now is not the time to be loading a further £170 on to the bills of our hard hit citizens. Rishi Sunak is not the man to be leading the country through this crisis in my opinion. He has not the first idea about the need to budget for most people, he is simply too rich, and whilst pretty much all of our Prime Ministers have been extremely rich (can you think of one who wasn’t?) I really think he is out of touch to such an extent that he simply has no comprehension.

MaizieD

Germanshepherdsmum

Indeed. Our GDP is heavily dependent on the financial sector. He’s not going to repeat Boris’s famous remark about business. The City is extremely influential.

The City (which is actually a completely independent entity) needs to be less influential. How has it improved life for UK citizens?

We need to broaden our economy to include sectors which will provide growth in all parts of the UK, not just in a London enclave.

GDP is a meaningless measure for those who have little or no benefit from it.

I agree Maisie. It would be interesting to know how many in the country as a whole agree. I appreciate the parties have policies on such things but the answer to a simple question could be quite instructive.

MaizieD

Creating jobs in which service industries, GSM?? Financial services? What else?

Food shops, food delivery people, couriers, meeting drivers, bars, restaurants, dreaded nail bars, hair salons, dry cleaners.

maddyone

I remember the 100% mortgages specifically because I remember Mr M complaining vociferously that it was irresponsible of the lenders because rates can go up and down, and because people could easily end up in negative equity.

But we go back to the point that many even most didn't Maddy. In the end, you can only make decisions for yourself and offer an opinion to those that ask for help.

Are there now suggestions that it is those who took out 100% and 100%+ are the cause of inflation or have I misunderstood the reason for it being raised?

Do you remember when Canary Wharf and the City were empty during covid Maizie? Everyone working from home. All the sandwich shops, restaurants, bars, barbers and hairdressers used by people working in the financial sector closed?

Creating jobs in which service industries, GSM?? Financial services? What else?

Germanshepherdsmum

Indeed. Our GDP is heavily dependent on the financial sector. He’s not going to repeat Boris’s famous remark about business. The City is extremely influential.

The City (which is actually a completely independent entity) needs to be less influential. How has it improved life for UK citizens?

We need to broaden our economy to include sectors which will provide growth in all parts of the UK, not just in a London enclave.

GDP is a meaningless measure for those who have little or no benefit from it.

We are an important international finance centre Maizie. My son, who is a capital markets lawyer, has banking and fund clients throughout Europe and in the US, Africa and the Middle East - as well as England. When the sector, which is tightly regulated, draws in so much money from all over the world and creates so many jobs, including in service industries, how is it ‘out of control and inimical to national interests’?

GrannyGravy13

MaizieD

Let's not forget that our PM worked for Goldman Sachs. A key player in the financial markets; markets which have a focus on making money with no regard to their effects on national economies...

Running a national economy is quite different

At least he has had a job outside of Westminster, unlike many career politicians.

The Financial Market provides a lot of employment, money and the making of it should not be sneered at.

I'm not sneering at it. Though I do think it's out of control and inimical to national interests.

I'm just saying that working in it has no relevance to the task of PM. We are not UK Ltd. We are a nation with completely different needs.

GrannyGravy13

MaizieD

Let's not forget that our PM worked for Goldman Sachs. A key player in the financial markets; markets which have a focus on making money with no regard to their effects on national economies...

Running a national economy is quite different

At least he has had a job outside of Westminster, unlike many career politicians.

The Financial Market provides a lot of employment, money and the making of it should not be sneered at.

Indeed. Well said.

And, apart from his excellent work at GS, dragging in sartorial choices is silly. He's a slim, small man wearing beautifully tailored clothing.

Germanshepherdsmum

She would have received annual statements showing how much she still owed, i.e. the amount she originally borrowed despite all the interest she’d been paying. I suspect that people close their eyes to reality and think of nothing other than being able to tell everyone they’ve bought their own home. They haven’t - they’ve bought a debt for which they will pay handsomely over 25 years.

However, interest only mortgages can serve a useful purpose.

Example: my husband needed a piece of business equipment, had no cash, mortgaged land interest only, made money using the equipment, paid principal back after a few interest payments.

He still has equipment and land all these years later.

Indeed. Our GDP is heavily dependent on the financial sector. He’s not going to repeat Boris’s famous remark about business. The City is extremely influential.

Germanshepherdsmum

She would have received annual statements showing how much she still owed, i.e. the amount she originally borrowed despite all the interest she’d been paying. I suspect that people close their eyes to reality and think of nothing other than being able to tell everyone they’ve bought their own home. They haven’t - they’ve bought a debt for which they will pay handsomely over 25 years.

Yes, and I did say that she was financially illiterate. Borrowing to pay off credit card debt isn't wise either. I think she did bury her head in the sand, but I very much doubt that she is alone in that.

MaizieD

Let's not forget that our PM worked for Goldman Sachs. A key player in the financial markets; markets which have a focus on making money with no regard to their effects on national economies...

Running a national economy is quite different

At least he has had a job outside of Westminster, unlike many career politicians.

The Financial Market provides a lot of employment, money and the making of it should not be sneered at.

She would have received annual statements showing how much she still owed, i.e. the amount she originally borrowed despite all the interest she’d been paying. I suspect that people close their eyes to reality and think of nothing other than being able to tell everyone they’ve bought their own home. They haven’t - they’ve bought a debt for which they will pay handsomely over 25 years.

Oh yes - sorry. I didn't spot the typo even after repeating it twice