Bank of England raises Interest Rate to 5%
 

:erm:

Bigger than expected. This is going be brutal for anyone whose mortgage is variable or their fixed term is about to expire.

Re: Bank of England raises Interest Rate to 5%
 

Having taken out a five-year fix this time last year, my smug-level is off the scale right now, though it is tempered by the knowledge that this is going to royally screw over a lot of people. I’m old enough to remember the news in the 1980s when similar events ruined a lot of people though thankfully not old enough to have had to have navigated it myself.

Re: Bank of England raises Interest Rate to 5%
 

Suspect these changes - and the next couple - are already priced in. Lenders I’ve looked at have added a full 1% onto the two year rates in the last few weeks. The fives fare slightly better only up about half that.

Re: Bank of England raises Interest Rate to 5%
 

Having paid off my mortgage last year, I'm even smugger. Our deal ended last year and I didn't like what was on offer, so we raided every account and any other thing we had.

Like wise I remember the early 90's, but more recently I remember pre-2008.

The problem is we have had too low interest rates for too long.

Re: Bank of England raises Interest Rate to 5%
 

Over many years, wages at the lower end of the employment market have been held down due the number of EU citizens prepared to accept pay levels that when compared to their home economy are high. Now that source of supply has effectively been stopped it is only natural that these industries to have to start paying more to attract workers. Also the UK rate of unemployment is currently 3.8% (source ONS), which in turn puts pressure on wages.

There are basically two instruments that can be used to control the economy, interest rates and taxation. The present government have nailed their colours to a low tax rate economy so all that is left is interest which is why we are at the moment.

As previous contributors have mentioned we have experienced a protracted period of low interest rates and this in itself has contributed to a staggering rise in property prices. It is certainly possible that there will be a drop, however that may prompt a return to "negative equity" very soon, which may lead to a repeat of the 2007/2008 crisis where many lending institutions ended up being insolvent and needed to use the Bank of England as a "lender of last resort".

So whilst a rise in income tax is never palatable it may be more equitable than base rate increases as there's evidence to show that those under 40 are more adversely affected by base rate increases as housing costs take a greater proportion of their disposable income than those in the over 40 age group.

Re: Bank of England raises Interest Rate to 5%
 

007stuart while your point is reasonable it’d be completely unpalatable to this Government and the next one that’s Labour nailing it’s flag to the mast vacated by the Tories since 2016.

There’s very little to suggest that inflation is wages driven - wages and living standards are falling in real terms and that trend only looks to continue. Essentially we are living in a housing market masquerading as a major economy. Cheap debt, bigger mortgages and longer mortgages have propped up the Ponzi scheme for decades now that chicken is coming home to roost.

Re: Bank of England raises Interest Rate to 5%
 

I did the same. 1.3% in March (the offer was in December of 2021) last year for 5 years. I have to stop myself from trying to find ways to shoehorn it into conversation with people :D, thanks for the opportunity.

Pure luck though. The mortgage application was in process when the first rate hike occurred but I still got the rate I initially applied for. It then took two and a bit months to complete so didn't start until March.

Re: Bank of England raises Interest Rate to 5%
 

Luck schmuck …. The writing was already on the wall at the beginning of last year for those willing to see it. Perhaps being old enough to remember high rates in the late 80s/early 90s gave me more perspective than those a few years younger but even so, it was pretty clear to me that the modest additional monthly cost of fixing for 5 years would be more than offset by not having to deal with rates as they will be this time next year.

What’s surprised me is that it has taken the bank so long to get rates back to what in the long term is only what ought to be seen as ‘near-normal’. It has undoubtedly contributed to the present state of affairs and moreover, it has further entrenched the idea that mortgage rates around 2% are something you should plan for when borrowing money over 25 years or more.

When I got my first mortgage almost 25 years ago the BoE base rate was 5.5% and less than a year later it had risen to 6%.

Re: Bank of England raises Interest Rate to 5%
 

I’m not sure the Government setting an inflation target and the bank working towards it counts as the bank entrenching an idea as much as Government doing so.

The low rates are what’s kept the Ponzi scheme afloat for the last 15 years, giving homeowners a nice boost in house prices too.

Of course anyone who genuinely saw the writing on the wall would have mortgaged themselves up to their eyeballs last year and slotted away what used to be their equity in nice 5%+ savings accounts now for the remainder of the term while being charged 2.something by the mortgage provider. I suspect those people are few and far between.

Re: Bank of England raises Interest Rate to 5%
 

There’s a big difference between seeing that rates are very likely to go up and having the resources in terms of time and money to simply rearrange all your financial affairs to take a punt on it. I have no idea what your personal circumstances are, but on our part ignoring the mortgage adviser who was heavily pushing 2-year fixes and insisting she present us with some 5-year options was as much as we could do. We were after all in the middle of moving house, which is quite a busy time as it is.

Re: Bank of England raises Interest Rate to 5%
 

I’m only pointing out an element of speculation involved. As you describe it’d be taking a punt.

Re: Bank of England raises Interest Rate to 5%
 

I'm an old lady. :D

Our mortgage started at 5.5% when we first bought our house in 1969 increasing to just under 13% when we cleared our mortgage in 1985.

Just saying.

Re: Bank of England raises Interest Rate to 5%
 

Probably 5-13% of a smaller number though. These days house prices mean the BoE probably can't go too much higher.

Re: Bank of England raises Interest Rate to 5%
 

Yup. Borrowed £2950 which doesn't sound much but at the time our combined weekly wage was around £16. So, although the amount we borrowd sounds very very low compared to to-day so were our wages.

Re: Bank of England raises Interest Rate to 5%
 

Sure but wages didn't keep up with house prices so even relative to wages it'll be worse.

House prices have gotten out of control and that's causing problems for everyone. It's obviously had for people that don't own a home made worse for them by rent which is also getting out of control as landlords leave the market but it's also made the economy as so much of it is being held up in housing costs.

It's crazy the Government won't do anything about it because it's undermining their own vote. People tend to vote Tory once they become homeowners but the average age of home ownership keeps going up and up.

Re: Bank of England raises Interest Rate to 5%
 

There is no comparison with the earlier decades due to the differential rates of increase of wages and house prices:

https://www.cableforum.uk/images/local/2023/06/8.jpg

---------- Post added at 20:15 ---------- Previous post was at 20:12 ----------

Interesting UK Interest Rate chart:

https://thinkplutus.com/uk-interest-rate-history/

https://www.cableforum.uk/images/local/2023/06/4.png

Re: Bank of England raises Interest Rate to 5%
 

When we jumped back on the mortgage band waggon in September 2018 we fixed the rate at 2.64% for 10 years. Seemed a no brainer as interest rates were so low there was only one way they were going to go.

We have unlimited over payments allowed but a high early repayment charge so have so keep it for the initial 10 years, so we are putting best part of £1000 away each month to clear it when the fix ends.

Re: Bank of England raises Interest Rate to 5%
 

Some good rates on savings accounts right now will dwarf the interest at that mortgage rate.

Re: Bank of England raises Interest Rate to 5%
 

I am fortunate to be in this smug camp. I paid mine off a few years ago now. :angel:

My savings account rates have gone up slightly, though not as high as inflation, but every little bit helps.

Re: Bank of England raises Interest Rate to 5%
 

One problem is that property is thought of simply as an investment so if/when prices drop there is going to be an investment market with the resources to buy property. Sometimes the buyer will be people buying second/holiday homes and in other cases investment companies or developers who can weather the storm.
A further problem is that areas with housing capacity are areas people don't want to move to. I guess companies/department could relocate nearer those areas creating demand but a downside would be rising property prices that locals in lower paid jobs could no longer afford. We can't simply keep building in areas with high demand as the demand will likely never go away and the infrastructure and resources (eg water) are limited.

Re: Bank of England raises Interest Rate to 5%
 

Indeed. The last 20 or so years of freakishly low rates have been very odd. My mortgages are fixed till 2026 by which time they should be paid off anyway.

Re: Bank of England raises Interest Rate to 5%
 

Rate rises hit those who already have loans. But the idea behind them is to put people (and businesses) off taking out new loans to slow the economy.

Why not make the rate rises only apply to new loans?

Or would that hurt the banks too much?

Re: Bank of England raises Interest Rate to 5%
 

It also encourages savers to save. Not so much when the rate is below inflation, but if you have any confidence in the Government to do so there’s a few 5%+ products out there for 3/5 years now. And likely to be more in the coming months.

Re: Bank of England raises Interest Rate to 5%
 

That would require direct intervention in the commercial operations of private businesses - difficult and controversial, as it would require carefully constructed primary legislation to enable it.

By altering its own interest rate the Bank of England isn’t intervening directly in anyone else’s business, but is in effect changing the terms on which it does business with others. Exploiting its unique position at the heart of the financial system ensures its actions have significant effects on the wider system.

Re: Bank of England raises Interest Rate to 5%
 

A touching story of course of little comfort for mortgage holders whose debt was created out of thin air, rather than a transaction between their bank and any other, or a central bank.

Re: Bank of England raises Interest Rate to 5%
 

I know of many people who got loans and mortgages at a fixed percentage for the term of the contract, or at least several years.

Re: Bank of England raises Interest Rate to 5%
 

The licensed creation of money in order to finance a loan is less problematic than the subsequent selling on of packages of these debts until nobody quite knows what is where. We haven’t actually solved that structural weakness since 2008 - all we’ve really done is force the system to hoard enough real cash to plug the holes next time the dam starts to burst. And we won’t know whether the banks have actually done that, or just found a clever way to make it look like they have, until it’s too late.

Re: Bank of England raises Interest Rate to 5%
 

The whole point ( not saying its correct) is too take money out of people's pockets, with less to spend the hope is that prices will fall ( supply and demand) the other side is increase saving rates ,to again take money out of the system. Don't forget there are more savers than mortgage holders.and with out them less mortgages, else they borrow more money from the wholesale market.

Re: Bank of England raises Interest Rate to 5%
 

Full-term fixed rates are fairly common in some other countries (the French like them, IIRC). You can get them here but there aren’t many choices so they’re not often competitive. I asked my mortgage adviser to present options to fix rates for 5 or 10 years when we moved house last year. She wanted to push a lot of 2 year deals but I thought this was too risky.

I’d have liked to have taken a 10 year fix but even at 10 years the competitiveness of the rate dropped right off compared to the difference between 2 and 5 years. So we went with the 5, and we will just have to see how things are looking come 2027.

Re: Bank of England raises Interest Rate to 5%
 

This is potentially the most important post on this thread. House prices have rocketed and salaries have not kept up. I bought my first house in 1999. I was on £25,000 and Mrs Pierre was on around £15,000 and the house cost £59,950.

That said it’s also about aspirations, there’s plenty of properties at reasonable prices around here, but you wouldn’t want to live there!!!

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The problem is that the BoE have one tool and one tool only.

It’s not the free spending of the population that is causing inflation, we’re in the middle of a cost of living crisis!

I’m not an economist and I am likely talking bollocks, but if between 2008 to now, the BoE had llifted rates up to around 5%, they would have some room in which to play.

They could have lowered interest rates to alleviate the cost of living crisis, stimulate the economy and it wouldn’t have really impacted inflation as this inflation is not caused by us spending like crazy.

---------- Post added at 19:57 ---------- Previous post was at 19:55 ----------

Yes, essentially/ historically inflation is the causality between supply and demand. But this round of inflation is not so simplistic.

Re: Bank of England raises Interest Rate to 5%
 

Indeed, however it works to a Government mandated target for inflation in the good times and gets left with the only macroeconomic lever going - for wholly ideological reasons - in the bad times.

It suits the Government (as a concept - not just this one) to pretend the Bank is acting independently and play itself as a victim of circumstance. The Government wants to remove money from the economy, the Bank steps in.

The obvious alternative (taxation) gets avoided.

Re: Bank of England raises Interest Rate to 5%
 

Hopefully, interest rates may have peaked. Inflation has fallen to 7.9%.
https://news.sky.com/story/inflation...-drop-12922655

Re: Bank of England raises Interest Rate to 5%
 

The consensus seems to be they still have some way to go, but it might be a slower rise next.

Re: Bank of England raises Interest Rate to 5%
 

Food inflation is still at a frightening level though.

---------- Post added at 13:17 ---------- Previous post was at 13:13 ----------

You are correct, the Government can overrule the BoE if it so chooses.

Regards your obvious alternative (taxation), Middle England is so over leveraged that have little room here esp. if they are (nominally) the party of low taxation. Of course the real ability to raise sizeable funds via wealth taxation, closing off-shoring, loopholes, etc. is not discussed due to the nature of those pulling the strings.