Mortgage Rate Rises

[Jono8]

Whilst I agree with your points, I would never have wanted house price increases had I had the choice. That aspect is something that many have benefited from undeservedly and is a horrendous part of our society.

I don't know how you separate the people who have benefited from the undeserved increase in house prices vs the people who haven't. Perhaps wealth taxes? Windfall taxes? We are happy to do it on companies, why not individuals.

This, I'm fine with house prices not going up ridiculously.

The only advantage you can gain by this is moving from an expensive area to a non-expensive area if you are able to.

If you have to stay in the same area or own a house in a cheap area, house prices going up (as a homeowner) does not really benefit you at all.

 

[danlightbulb]

Inheritance tax you can't escape. And more substantial IHT. But it's generally unpopular

Everything is unpopular depending on the cohort you're in. This has to be about what is fair, and spreading the pain more equitably not just on one group.

If money is to be removed from the economy, then fine, remove it at all levels proportionally equally. Remove it from companies too, remove it from the stock markets, remove it from inheritance, remove it from high incomes. But those are all NOW things. Money also needs to be removed from historic benefited things as well, to disbenefit those who have already made a mint off the backs of others (i.e wealth).

 

[HangTime]

Not sure what your point is with this.

My point was you said you couldn't find data so I was providing some data (and minor corrections on the size or mortgages then and now). I don't disagree with your supposition that double-digit interest rates would be more severe that yesteryear.
I did also want to address the perception some others have around affordability being worse now than in prior peaks - as the article mentioned 2007 was the peak for proportion of income going on mortgage payments.

So really it becomes about what happens next. Do rates rise significantly higher, potentially pushing us into unprecedented territory or not.

 

[413x]

I cannot understand what setting rates much higher will achieve positively vs keeping them here longer.

 

[HangTime]

Definitely not easy to implement.

I suppose like the energy price cap, what could happen is you cap the variable rate of mortgages at 4.5% (or whatever number is arrived at, mechanism for this unknown), so that when a fixed rate product ends you drop onto the cap rate. An individual is then free to stay on the cap or seek out an alternative fixed product.

This is essentially the same thing as my idea for a secondary base rate.

We'd end up paying for that somehow though. If the lenders are restricted in what SVR (I guess it would need a new name!) they can apply, then perhaps they would increase fees. Or exit the market and reduce competition.

It also causes issues in terms of the discrepancy between what the base rate is and what rate lenders can actually borrow money at. At the moment, they can adjust their SVR based on their own cost of credit fluctuation (I'm not going to pretend I understand how LIBOR and all that works but what I'm driving at is they face volatility so if an SVR of 4.5% was profitable today it might not be in future if market conditions changed.

 

[Jono8]

I still think tax relief on Mortgage interest is the best solution to this.

 

[Mrwong]

My point was you said you couldn't find data so I was providing some data (and minor corrections on the size or mortgages then and now). I don't disagree with your supposition that double-digit interest rates would be more severe that yesteryear.
I did also want to address the perception some others have around affordability being worse now than in prior peaks - as the article mentioned 2007 was the peak for proportion of income going on mortgage payments.

So really it becomes about what happens next. Do rates rise significantly higher, potentially pushing us into unprecedented territory or not.

Double digit rates will certainly kill the economy. Eventually, all countries will have to redenominated the currency.

 

[Raymond Lin]

I still think tax relief on Mortgage interest is the best solution to this.

Won't that give an incentive to get on the ladder even more and thus, drive prices up further?

 

[Sythe79]

What does 'renewal' mean when it comes to mortgages though? What I think is sometimes not fully appreciated is that mortgages are a long term agreement (decades) that often include short-term lock-in periods. People may think of it like a cycle of 'renewals' in terms of taking out a new mortgage every few years but beneath the service it's not really operating like that.
I need to understand more about exactly what this 4.5% cap applies to.

renew, as opposed to new. the existing debt terms are changed, rather than the banks doing their accounting magic and writing off old debts with new ones and creating new money.

 

[Mrwong]

I still think tax relief on Mortgage interest is the best solution to this.

The UK can't afford to do that, they will need to pay down the debt, which they have no chance of doing.

 

[danlightbulb]

I still think tax relief on Mortgage interest is the best solution to this.

I agree it would help. In response to comments saying that this would go against the objective of cutting inflation (because it reduces the impact of the base rate rises), yes this is true, so it needs to be combined with other monetary clawbacks elsewhere in our economy. I.e yes, mortgage holders (and indirectly renters) would be helped here, but elsewhere those currently getting away scott free also need some pain allocated to them.

The UK can't afford to do that, they will need to pay down the debt, which they have no chance of doing.

They can if its offset somewhere else! Why only one dimensional thinking all the time.

Wealth taxes, share buy back taxes, dividend taxes, CGT, VAT on luxury goods, no triple lock. You want spending down? Then you allocate some pain EVERYWHERE. Take money out of the economy, from all angles, all corners.

 

[Mercenary Keyboard Warrior]

Well my idea of it would be existing domestic mortgages only.

Look at what it is that is trying to be achieved here. Money removed from the economy, we all agree on that.

But how it is done, is open. There are lots of options.

Interest rate rises really hurt a not small subset of people, whilst benefiting some (people with decent savings) and having little impact on a good number too (elderly who have paid off their mortgages primarily).

Why is it acceptable that only one group takes the pain of trying to control inflation? It really is bonkers.

Raise rates within reasonable limits, yes. Raise taxes at the high end too. Wealth tax so wealthy people pay more too, but so as not to impact elderly but not wealthy people. Protect renters, but increase taxes or rates on buy to lets. Landlords always have the option to sell and exit the market if they don't like it any more - those with one home do not.

It is about targeting pain fairly across everyone, which is not happening right now.

Your still ignoring the fact that whilst its not a negative for those with savings when the rate goes up, its still recognised as deflationary since they are more inclined to save rather than spend.

 

[Mrwong]

I agree it would help. In response to comments saying that this would go against the objective of cutting inflation (because it reduces the impact of the base rate rises), yes this is true, so it needs to be combined with other monetary clawbacks elsewhere in our economy. I.e yes, mortgage holders (and indirectly renters) would be helped here, but elsewhere those currently getting away scott free also need some pain allocated to them.


They can if its offset somewhere else! Why only one dimensional thinking all the time.

Wealth taxes, share buy back taxes, dividend taxes, CGT, VAT on luxury goods. You want spending down? Then you allocate some pain EVERYWHERE.

The level of debt and reduction in " combinations "of services in relation to tax intake.
You can only off set to a point, you cant go below 0 for public services. Offsetting, has been going on for 30 years.

The proportion of wage to assets is becoming wider. As this happens it becomes harder for people to service their debt. Once we reach an equivalence point the average working person, will not be able to afford private ownership.

This with IHT level is stealing wealth from working people. While those who have wealth bypass IHT.

Therefore the wealthiest accumulate assets cheaper, and it becomes more expensive for the workers.

 

[danlightbulb]

Your still ignoring the fact that whilst its not a negative for those with savings when the rate goes up, its still recognised as deflationary since they are more inclined to save rather than spend.

Im not ignoring it, I agree its true but as you said previously, one group gets the stick, the other a carrot. The thing is that the group getting the carrot might choose to use it, or might not. Its somewhat discretionary, and certainly doesn't impact their living standards. Instead, as I said above, all groups need to feel the stick to a proportional extent. For those higher wealth groups, and for companies, this means different tactics.

 

[Jono8]

I dont really understand the thinking behind all of this anyway.

I understand that they want to curb inflation on essentials. We don't want constant large price increases on food and energy etc.

However, I do not understand the fix for this being raising another essential (ie shelter/a place to live) to absolutely astronomical costs (for both mortgage owners and renters)...?

I think i'd rather have food going up a bit, costing me a few hundred a year extra, rather than my mortgage going up and costing me £8,000 more a year in interest

I dont see how this benefits anyone other than the already wealthy who own their homes outright or have masses of savings.

 

[HangTime]

renew, as opposed to new. the existing debt terms are changed, rather than the banks doing their accounting magic and writing off old debts with new ones and creating new money.

If you just mean remortgaging, wouldn't the lenders just pull out of the market? Why would they agree to offer someone at a mortgage at 4.5% max if base rate is 5%? They could probably make more money investing that capital elsewhere, lending to other institutions etc (not sure what pies than can get their fingers in). For a cap to work, it either needs to be subsidised or be at a high enough level to permit profitability. I might be missing something here though as I'm still not 100% clear on what renew means.

 

[gazref]

I’ve been very hesitant on wealth taxes depending on how they are implemented. They would have to be sufficiently high enough and not consider illiquid assets like primary house otherwise I would have to end my time in the UK. No doubt they could be avoided quite easily by the truly wealthy.

You can't make assets disappear. You absolutely can tax them. Due to shockers like the bedroom tax the idea of a wealth tax makes some people nervous because they think it means the family with a £1m cottage or the household pulling in 150kyr that will be impacted.

It's the select few who's money makes 10s-100s of millions ad infinitum. It's the companies owned by shareholders sucking out record profits that will just sit in a spreadsheet somewhere or be used to buy even more assets that will feed the cycle.

Start taxing these entities (owned by the select few) with intent and the government will have more for public services, more money to pay back the BoE for all that borrowed money etc...

 

[jaybee]

You can't make assets disappear. You absolutely can tax them. Due to shockers like the bedroom tax the idea of a wealth tax makes some people nervous because they think it means the family with a £1m cottage or the household pulling in 150kyr that will be impacted.

It's the select few who's money makes 10s-100s of millions ad infinitum. It's the companies owned by shareholders sucking out record profits that will just sit in a spreadsheet somewhere or be used to buy even more assets that will feed the cycle.

Start taxing these entities (owned by the select few) with intent and the government will have more for public services, more money to pay back the BoE for all that borrowed money etc...

It's a no brainer. Why are we not doing this more though? The top 0.1% would not even notice a change to life style if their tax went up 50%+. They'd still have the same life style.

EDIT: I meant top 0.1% not 1%

 

[Noughtboy]

yep, however, thousands of old retired people with savings are enjoying this, and they vote conservative. on top of that, the election is not far off, but those who renew at a higher price wont all be renewing before the election, so they may not have lost the votes of those who have 1 year left on a 5 year deal.

<iframe height="572px" width="100%" src="https://www.ons.gov.uk/visualisations/dvc2362/figure1/index.html"></iframe>
And the total over that period will be 4.4m households. Additionally, rising interest rates tend to negatively affect the value of the housing market and likely lead to repossessions so there is a storm gathering here for a change in parties come election time in 2024. The Tories, knowing this, are very unlikely to call an early one and will delay until the last minute.

 

[fez]

If money is to be removed from the economy, then fine, remove it at all levels proportionally equally.

Thats not fair though. Is it fair that someone has been paying a mortgage at 2% for the past 10 years whilst others are entering the market at 5%? Is it fair that some people own their properties outright and have no mortgage? Is it far that some people locked in a 5-10 year mortgage just before the high interest rates hit?

There is no such thing as fair. Its a bit of luck and usually it evens itself out over time. If it doesn't it doesn't. Perhaps this will be the wake up call some people need to be a little more financially responsible and actually plan for a future where they might not always be able to live up to the edge of their means without consequence

I cannot understand what setting rates much higher will achieve positively vs keeping them here longer.

Isn't the argument that people basically haven't actually changed their spending habits in response to rate rises. What proportion of the population is hit by them? The only direct exposure I have is my mortgage which is about to expire at the end of the year. Plenty of people don't have to worry about that for another few years. If I didn't have the mortgage issue looming I would be having an alright time with the 4% savings rate I am getting.