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

Germanshepherdsmum

Does nobody remember rising house prices in the 70s? I had a very modest two up two down. I worked with a girl of similar age - she and her husband were renting but looking to buy. Nothing was good enough for them. Prices began to rocket and they ended up with something worse than they originally turned their noses up at. Meanwhile we made a profit and moved upwards.

I really do wonder if you know how you come across in print.

We started married life in a two up two down as well. We only lived in it for two years and when we sold it we didn’t make a profit. We had to sell because we were relocating.

Purely an anecdote about how quickly house prices rose in the 70s Daisy. What’s your problem? Do you know how you come across?

I do wonder if people really understand the difference between buying a house in the 70's and buying now. OH bought his first house in 1976 for £10K, did it up a bit and sold it 18months later as he moved jobs. He had a mortgage of 2.5X his salary and he had a deposit of £1K. That house is now worth well over £700K. To do what he did in 1976, he would need a deposit of at least £60K and a mortgage for £660,000. He reckons that his salary would be £30K if he was in the job he was in in 1976. so the mortgage would represent more than 20x his salary. Clearly he wouldn't be able to buy the house he bought in 1976! Our homes have consistently earned more money than we have and rents have consistently increased to keep pace with rising house prices, so it has become increasingly difficult to save for a decent deposit. Those of us who were able to buy our homes have been extremely fortunate, if we live in areas where there are an acute shortage of housing, once into that market we have been doubly lucky. I've not been a clever speculator, been extremely prudent with my money or even earned huge salaries. I have just been very lucky and I feel huge gratitude for my good fortune which I am able to share with my children, so they are now also very lucky. So the rich get richer and the poor get poorer!

My first house, a real doer-upper, cost £1750 in 1970.

The Government are doing the only the only thing they know how to do. Sadly they really aren't very knowledgeable. Idiots is probably pushing it, but sometimes I wonder what we level of intelligence we have got in the government.

They're trying to reduce inflation by raising interest rates.

I don't know how often you can say this without people realizing people realizing that the government is going about it the wrong way.

We do not have excessive demand. We have two little supply.

We have a supply side inflation problem. To deal with that the government should be boosting production. We all realise we have bottle necks in this respect. Too few workers for instance. Sadly it seems the government feels unable to do what is right for the country in this instance. They, and those whose thinking does not get past Daily Mirror level, just go all out on "othering". A common Tory/superiority-complex sport.

They need to listen to the employers and what their needs are not just act as the strangled-brained idiots they are.

Currently they are strangling GDP. They are doing this for purely political reasons. They are either not prepared to think about the country or their minds are not capable of getting out of their self-inflicted rut.

They have the tools that for political reasons they are refusing to use. In the process they will tear apart the lives of many people.

How can any of you "I'm alright Jacks" continue to support this party?

two to

Mirror Mail

Germanshepherdsmum

My first house, a real doer-upper, cost £1750 in 1970.

I think that demonstrates what I'm saying, if you had stayed in that house until now it would have increased in value by £112K but OH's house bought later for more money at a time when prices had dropped following a steep rise, would have made more than £550K.c Of course most of us didn't stay in the same house, OH moved 3x before I met him in the mid 80's, I had bought my own modest house following a divorce and we've moved twice since then, buying and selling a holiday home in the 90's. There's a lot of luck involved as we've had some interest hikes and some serious deflation of prices over the years and fortunately we've always been able to ride out the difficult years. I still think the current situation is the most difficult time to get on the housing ladder and renting is very expensive.

Germanshepherdsmum

My first house, a real doer-upper, cost £1750 in 1970.

Ours, which was similar to yours by the sound of it GSM, cost a little over £3000 in 1974. We had to get a mortgage from the Local Authority as no Building Society would look at us as we had no deposit as I had just finished higher education and my husband was still a post grad student. It was a two up, two down terraced house. When we sold it two years later we made no profit on it. We had to sell because we were relocating to the south. Although we were both working by then, we had enormous trouble getting a mortgage for our next house as the Labour government had brought in conditions for getting a mortgage and Building Societies were not allowed to give mortgages to second time buyers. We managed to get the mortgage from a French bank eventually, otherwise I don’t know how we would have managed. The Labour government at that time certainly did nothing for us in 1976.

Increasing interest rates has never slowed inflation when implemented on 13 previous occasions, so I'm baffled as to why our nutty government thinks it will work this time.

Batworthy

Increasing interest rates has never slowed inflation when implemented on 13 previous occasions, so I'm baffled as to why our nutty government thinks it will work this time.

The government do not control interest rates

The Bank of England control interest rates, not the government. Why they think raising interest rates will slow inflation baffles me because inflation isn’t being caused by people having too much money. Although I saw a wage rise of over 15% had been agreed to by somebody yesterday but I can’t remember who it was. The public sector are being squeezed dry so are certainly not contributing towards inflation.

The government, or rather, Parliament, 'could' over ride the BoE if it had a mind to. The legal mechanism exists in Section 19 of the 1998 Bank of England Act.

That being so we have to ask why the government is carrying on as it is.

Various answers will be available, according to one's political stance, economic knowledge and ability to make reasoned judgements...

I think they're trying to cow the working population into accepting minimal pay increases and perpetual financial struggle as their lot in life. Creating a vast pool of low cost labour to boost company profits, executive pay and dividends to shareholders.

Other might disagree with me ..

The Government can overrule the Bank at any time and the Bank has very few tools it can use.

People forget we had tax relief on mortgages back in the 70sand 80s. House prices were much lower and a much lower multiple of income. Many could afford for the wife to stay at home. It is much more difficult now. If we were young teachers in London now we couldn’t afford the house we bought back then as young teachers. We were lucky - not more financially astute- we shouldn’t try to pit generations against each other.

I don't know if increasing rates is a good idea for the economy as a whole (or whether it will slow inflation), but I don't think it's particularly unfair. Mortgage rates, like savings rates go up and down, and this should be taken into account when people take them out.

Buying a house (or 'purchasing a property' as many prefer to call it ) is a gamble and always has been. There is no guarantee of anything, yet people seem to think that they have been swindled if they don't make a fortune.

There have always been 'corrections' in the housing market, and yes, it's grim for the casualties (of which there were many in the late 80s/early 90s) but those same people would very probably have been delighted if the houses that cost them dear had instead made them a huge profit and cost someone else an arm and a leg when they sold it to them.

I think we need far more social housing, and rent controls on private rentals. That would give people more options and would ultimately be likely to bring house prices (and thus mortgages) down too.

Good post Doodledog.

Doodledog

I don't know if increasing rates is a good idea for the economy as a whole (or whether it will slow inflation), but I don't think it's particularly unfair. Mortgage rates, like savings rates go up and down, and this should be taken into account when people take them out.

Buying a house (or 'purchasing a property' as many prefer to call it ) is a gamble and always has been. There is no guarantee of anything, yet people seem to think that they have been swindled if they don't make a fortune.

There have always been 'corrections' in the housing market, and yes, it's grim for the casualties (of which there were many in the late 80s/early 90s) but those same people would very probably have been delighted if the houses that cost them dear had instead made them a huge profit and cost someone else an arm and a leg when they sold it to them.

I think we need far more social housing, and rent controls on private rentals. That would give people more options and would ultimately be likely to bring house prices (and thus mortgages) down too.

I totally agree with having more social housing but private rentals will be just as affected by mortgage rates as buying a house. Let's be realistic here about the actual situation faced by so many people now, if you had been faced with paying a high rent or scraping together enough deposit to buy a house when interest rates were so low, what would you have done? Also try to factor in the repaying of student debt at 9% for those with a uni education. Those who were able to buy with the help of well off parents, probably don't have the student debt, probably have had a better education and got a better job and have had help with their deposit. The rich get richer and the poor get poorer. If you are OK with that, there's nothing more to say.

Rent controls would be another nail in the coffin of the private rental sector.

Of course I'm not OK with the rich getting richer and the poor getting poorer. There is really no need for that sort of personal dig - a point can be made just as well without them, and it is not remotely true.

I did buy a house just before interest rates rose - twice. Both times we really struggled when the monthly payments shot up, and the second time round we fixed for 5 years at 16 or 17%, as we really thought they could go as high as 20%. There was no bank of mum and dad for us, either.

I am not at all unsympathetic to the plight of young people, and nothing I said would suggest otherwise unless someone is determined to see it. As I actually said, I don't know if the move is a good one economically, but I don't think it is 'unfair'. There is nothing fair or unfair about market forces - how would you regulate mortgage rates to be fair, Foxie48?

Germanshepherdsmum

Rent controls would be another nail in the coffin of the private rental sector.

How? It would reduce the incentive for people to buy up houses for rent, but that would reduce house prices, surely? That would give people more chance of becoming owners themselves. There will always be houses to rent, as people can only live in one at a time, and death, divorce and work moves will always leave people with properties they don't need, even if only temporarily.

I think that social housing is a more important priority though.

I wouldn't increase bank rate to control inflation because it targets the wrong people. BTW I am aware that the BoE is not under govt control........I am not an economist but a higher interest rate will just put ordinary families, whether they are renting or with a mortgage, under huge pressure. Those of us who own our own homes mortgage free, don't get hit at all. How can that be right? I don't have a problem with people being wealthy but when times are hard I think we ( and I am quite well off) should pay our share. tbh I think it would be much fairer to increase taxes including inheritance tax. I have no problem with paying for my social care, should I need it and if this reduces what I leave my children, I really don't have a problem with that either. Home ownership causes the greatest disparity between those who have and those who have not, I am prepared to try to make a small difference. That's who I am and what I believe. For the record I come from a wc background and have married into an upper mc family with all the benefits. I love my extended family and feel fortunate to be part of it but my goodness, it's taught me about equality (or lack of it!)

Foxie48

Unkind reply, Doodledog never advocates for poor becoming poorer.

its taught me about equality (or lack of it!)

I come from a working class background and I married a man from a similar background. We were both lucky enough to be able to take advantage of higher education and we both became teachers. Where I really learnt about lack of equality was when I was teaching in an ordinary state school but my husband got a job in a fairly minor, but good independent school. It was probably because he graduated in Classics and they wanted a Classics HofD. Anyway having seen the advantages that children in his school enjoyed, I became determined that my children would have those advantages. I went back to work full time when my youngest was five so that my oldest could start senior school in my husband’s school. It was hard work raising three young children and working full time, but I don’t regret it for a moment. As a result, they all achieved extremely well.