Vocal Voices

This comes after the BoE raised the base rate by 0.5% this morning.

It really is bad new for those with mortgages, but will it trigger a house price crash? Who knows?

With 20:20 hindsight it is probably late in the day. Instead of piddling about with 12 monthly micro rises there should have been fewer but higher rises. We would still have got to 5% but a few 1.25% to 1.5% increases would have sent out a warning to borrowers not to over extend and to live within their means.

Bumpy ride ahead for many.

The BOE was the first major central bank to start raising rates. They also were the first to go with Quantitative Tightening, buying back the stuff they sold and making the money supply tighter.

Because the US started later they had to raise faster. This provided larger shocks but still did not fix the problem.

Inflation in the developed countries is being stoked by incoming energy prices. This is leading to goods and service price rises. It is something that the central banks cannot fix with just interest rates alone. In fact they need to trigger a recession before inflation will fall and they can reduce rates. But so far a recession has been difficult to trigger and by they time they manage it the damage will be severe.

I read an article about how this is going down recently. We have never seen interest rate rises like this before. Ever! Oh yes you can say, we had 15% interest rates back in the 90's. And so we did. But it was from a start point of at least 5%. That is a tripling of interest rates.

0.25% to 5% is 20 TIMES the prior rate.

Even now the Fed, who thought 4.5% would do the trick, are aiming at 6%. What happens if they can't control it with 6%? 8%? 10%?

In the current economic environment 2% inflation is a fairy story. It is not going to happen any time this next decade unless there is a major and I do mean MAJOR economic crash globally.

Not that long ago, and almost forever, economists saw a recession as a disaster for an economy.

Currently today's economists and even the BoE and Chancellor Hunt see one as a positive and a way out of the mess we find ourselves in.

Strange timing when UK dept is now at 100.01% of GDP.

Even more so when inflation destroys debt. Were the world willing to accept 10% inflation for a decade the debt would be inconsequential.

Of course the debt the government owes is owed to the extreme wealth, not to the ordinary people.

A recession would reign in inflation and keep the debt relevant by retaining a high currency value.

Now let's go back to Truss. She was willing to keep the economy going at the cost of higher inflation.

The money and power destroyed her with a fake run on finances that required a technical fix from the BoE.

You really have to look to see who is yanking your chain.

All I can think is when I worked for Anglia Building Society back in the 80's I had a staff mortgage at 3.5% net, 5% gross. And during the 80's mortgage interest rates rose to over 13%

I worked in Arrears, I am sure I dont need to tell you how busy we were. So interest rates of 5% still sound pretty low to me

The problem is that we had cheap money for more than ten years; very low interest rates, and people growing up in that period thought that this was the norm, that it would last forever.
Those of us who can remember 15% interest rates in the late 70's early 80's were a lot more cautious. Some people have over extended themselves, four and five bedroom houses with a big mortgage.

Yes, Cromwell!

I have a few nieces and nephews in their number whose parents went through the double-digit mortgage rates and the repossession period of the late 80s and early 90s who tried to warn them.

Their children were born in the 90s so for most of their adult lives the rate has been at 2% or lower - until now.

I know from family chats that they were warned to spend as though rates were at 5%-6% and to put some money away in things like ISAs or even normal savings accounts.

Unfortunately, and I know this is a generalisation, many did not want to buy small and trade up or be seen driving around in a 10yr-old Fiesta or Corsa. They wanted bigger and they wanted new and they wanted them now, and that has come back to bite them.

What I found interesting in Hunt's statement about his mortgage flexibility plan, a key point, was that he did not want it to hurt a borrower's credit rating! What?! The last thing a borrower having trouble to pay is to take on more debt.

Maybe we need different maths pathways in schools. One for pure maths, calculus, differentiation and integration etc, and one more practical for everyday needs such as personal, household, credit and working money finance.

Workingman wrote:Maybe we need different maths pathways in schools. One for pure maths, calculus, differentiation and integration etc, and one more practical for everyday needs such as personal, household, credit and working money finance.

Agreeing with this!

Kaz wrote:

Workingman wrote:Maybe we need different maths pathways in schools. One for pure maths, calculus, differentiation and integration etc, and one more practical for everyday needs such as personal, household, credit and working money finance.

Agreeing with this!

Me too. But old LSD was much better for this. with Base 12, Base 20 and Base 10 it was a maths workout for people just handling and spending money. As soon as it went decimal it because "easier".

Perhaps we should also teach everyone how to use a spreadsheet to manage home financials. Use a free one in the schools and make it mandatory for anyone not taking pure maths. With a spreadsheet you don't even need to know how to do complicated maths. Although you do need to know how to verify what it says.

Might as well use the tools that are there.