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You are ignoring it.
Simply if you are lent money "cheap" who do you think is doing so, and can you not see there being any impact to them?
Mortgage Rate Rises
- Thread starter glenimp617
- Start date
You are ignoring it.
Simply if you are lent money "cheap" who do you think is doing so, and can you not see there being any impact to them?
QE is buying bonds, the aim is keeping inflation on target when rates are low. We are at the opposite of that now, we are into QT, they are selling bonds. Mortgage QE would simply feed the asset bubble.
I'd agree that we should be increasing housing supply but I don't think the intention is to put millions into financial ruin. Obviously the ones right on the precipice may be lost but in aggregate we should be in a different situation than 15 years ago due to reduced mortgage LTV (median is around 70% compared to 80% in 2007) and booming house prices naturally creating equity.
Soldato
Im not sure it would.
The product would specifically be for remortgages only, not new lending. So current base rate hikes will still have a big impact on things that aren't existing domestic mortgages.
Look, without support, millions of people are at risk of huge financial impacts, bigger than the energy crisis, bigger than food inflation. A scale similar to the impact of covid for many people, as a mortgage can be a substantial part of your total wage.
So yes, of course providing a cushion here will come with some consequences, but a well designed policy can manage these consequences to be fairly minimal, and trickle them in slowly whilst the economy is still growing so that the effects are hardly felt.
'Cheap' is relative. Cheap compared to existing base rate under a one base rate system, yes. But a new secondary base rate is a new idea, a new market, a change to our underlying financial system. So 'cheap' doesn't become 'cheap' any more it just becomes the new normal and the impacts, as Ive said, are just absorbed slowly into our currency value.
I do not know why this is not a thing generally anyway.
It is such a ***** scam that you have to class interest as taxable income over the personal allowance, yet actually paying interest (especially on something like a house/shelter) is not a deductable loss from your earnings.
To be honest, i think it would be a good idea to reintroduce it.
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I’m still not sure why we are only using interest rates to stop people spending money - why not target some heavy taxes against luxury’s - that way we are not punishing the normal people in the UK, but more the people who would be buying luxury items or yachts, cars, Rolexes etc.
It feels very Tory to raise interest rates - the rich - mortgage free with money invested are gifted more wealth by the workers of the country.
It feels very Tory to raise interest rates - the rich - mortgage free with money invested are gifted more wealth by the workers of the country.
Soldato
We don't need to people stop spending money on frivolities, basic things need to stop going up. It's supply side not demand side that is the problem. Some potential reasons for this:
* Currency deflation
* Increased manufacturing costs and tarrifs
* Base Commodities going up (perhaps even for the above 2 reasons)
* Business rates and taxation
* QE
I understand the BOE only have one lever, and no doubt there is some political pressue anyway (but I can't be sure obviously).
Let's face it, we're paying a Truss tax on the money markets and we're paying a brexit tax on everything. That's why it's harder to shift here.
Caporegime
Because those companies are fantastically niche and don't really make that much money in the grand scheme of things let alone if you taxed their purchases more. Inflation isn't caused by the rich spending money, its the cost of everything going up. You can't just tax the wealthy more and give that to other companies to keep prices low.
The wealthy generally don't have huge sums sitting in the bank earning interest. Largely because for the past decade their millions would have earned them precisely **** all in the bank. The markets are not exactly flying high at the moment either.
Where they can clean up is if property becomes cheaper and they feel that its a good investment. That being said, the government seem to be going hard at private landlords right now so I don't know if thats even a good idea. Super high interest rates (especially on BTL) along with a potentially volatile few years makes that quite the gamble.
The issue is, and has been for years that we are not building enough houses. Low interest rates have allowed house prices to get absolutely crazy and people have been able to afford them because ~2% is super affordable for massive debt and people will do whatever it takes to avoid paying rent if they can. We have a lot of wealth in this country and a huge amount of it is ploughed into the housing market. A lot of people are not wealthy but their parents are, or their grandparents, so they give them money to help out and all this does is keep the housing "affordable" when they should just be lower priced. Then the government is also petrified of being in power if the housing market crashes so they keep propping it up when things start looking a little iffy.
They will almost certainly step in if prices start dropping and people are struggling en-masse. They will either force banks to give people payment holidays, guarantee the debt and probably do something monumentally stupid like another stamp duty holiday.
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Lots of food is zero rated anyway.
Although actually its very much dependent on specifically your basket.
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Your still ignoring the question of who is impacted by your cheaper borrowing. Someone still has to fund it. You keep avoiding it but you recognise that right?
No one has a god given right to borrow money. If you make lending to a certain sector unattractive who is going to lend to that sector?
Soldato
This is why the whole thing is a nonsense. BoE driving up the base rate pulls money from people (via things like mortgages, but also by making it more beneficial to save rather than spend) and stops them spending it, lowering the demand for goods.
But the things that are causing the inflation problem are things that we can't cut back on. This is what makes the whole thing a nonsense. Rate increases will stop spending, but by hurting people and pushing them into poverty, and on a cliff edge rather than gradual behavioural change. In turn, the things people stop spending on will be retail, hospitality - so local jobs and businesses suffer as well. These people who lose their jobs might be our sons and daughters who are just about to enter the workplace or at the starts of their careers. What a situation we are making for them.
On your last point, this whole thing was happening regardless of Truss, it just created a shock that made it happen more acutely. But it is now easy to blame Truss and Kwarteng for the whole thing. It is laughable, that the very people in power making the decisions have been the same people all the way through, but can now just get away with blaming one individual and making her the fall guy. Also Boris, who conveniently will also now be used as a fall guy for past lack of policy and current problems.
Im not saying these individuals didn't have a hand in things, but Sunak was either chancellor or PM for what, 90% of the last 3 years? The ones still here share as much of the blame as the volatile individuals no longer in power.
Soldato
I dont think I am ignoring it. Ive answered it.
A secondary base rate for remortgages will ultimately effect (gradually over a period of time) currency value. Because it will be new money created for this purpose, not Government borrowing.
Therefore it slightly effects currency value, which means everyone is slightly impacted.
But it would be spread out steadily over a long period as people come off current fixes over 3-5 years predominantly, so not a cliff edge impact.
On your second point, why would the lending be unattractive? Banks would be able to still make profit by lending at secondary base rate + X, like they do now nominally at base rate + X.
They wouldn't be able to use the secondary rate for anything other than remortgages, so if they didn't go with it they'd not be maximising profit opportunity.
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Caporegime
Everything is causing inflation because inflation is based on so many things. The cost of shipping, production, staffing, materials has all shot up. As to things that people can't cut back on, thats rubbish. KFC is as busy as ever when I go there. People are simply not cutting back like they should. People have had over a decade of buying what they want, when they want and not really having to worry about it. Energy prices went up so the government stepped in. People are just burying their heads in the sand and hoping it will go away or the government will catch them when they fall.
Truss and Kwateng made a colossal mess of things that 100% is still being felt despite it only being for a month. Boris has been making awful decisions for years and Sunak was part of that. These things are a combination of historic decisions and spot decisions and on both counts we have been bloody awful far too often. You can't fix these issues in weeks or months usually even if you make the best decisions and I think its fair to say we have not been doing that for a long time.
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No your really not. Your waffling around the edges about currency value.
So its new money, new money from whom?
Of course it affects people.
We are back to your fantasy economics models again.
Have you done any reading like economics for dummies I recommended the last time we went round one of these loops?
The simple fact you say they would have to only use those funds for new mortgages surely means you get that by default your reducing the amount lent on normal rates.
Certain credit is still offered really cheap. Best buy 0% cards are 2 years. Balance transfers with no fees for a long time too. Lot of people using tactics they've used many years to spend money they don't have and this type of credit remains cheap whereas long term mortgages and loans are the ones where these BOE rates are being passed on to.
That's not true is it.
Most people did cut back on their energy usage when prices rose last year, because when it was cheap we wasted it.
And the majority of adults in this country are overweight or obese, so there's definitely some room for cutting back on food as well!
Soldato
You essentially want your life results to be determined solely by your choices with external factors having no effect?
The time for that is called childhood which we all leave behind when we become adults and have to deal with the big bad World and all its infinitely variable challenges.
Before you got your house recently, I'll wager that you were in the "hoping for a housing crash" crowd so you could get on the ladder without a care for how those scenarios actually occur or affect homeowners... Now you're a homeowner, your opinion as done a 360?
Let me guess, it'll start UK wide just as you come off your fixed deal?
I'd bet if you were able to take advantage of it, you would have lauded the Stamp Duty scheme though...
Sometimes something is just a bad idea even if you win out of it and, being able to see this and agree with it is a measure of a person.
My payment increased by 25%. I didn't like it but I sucked it up, had a quick grumble to myself and then carried on with my life as best I can.... Again, adult stuff.
Soldato
The same place quantitative easing money comes from.
Yes that would be true, but I assume the profit margin for the bank would be similar so no impact there. I.e bank is working on base rate + X, and now will be working from secondary rate + X. X is still the same profit margin for the bank.
Caporegime
To be fair, anyone with half a brain didn't laud it because you saved yourself 10k and house prices went up £20k as a result. You had two options. Pay that £20k more and save £10k, so a net loss of £10k or you don't use the stamp duty holiday and still pay £20k more but without the £10k saving. Unsurprisingly house sales dipped after it was dropped.