UK: Interest rate hits 'shock' 5% after 0.5 percentage point increase

[Social Media]

 

The Bank of England has shocked economists and investors by raising interest rates half a percentage point to 5% - the highest level since 2008.

 

Economists had expected the Monetary Policy Committee to raise interest rates by only a quarter percentage point, but the MPC voted 7-2 for the surprise increase, explaining that it was aiming to bring higher-than-expected inflation under control and indicated concern about high wage increases and company profit margins.

 

It comes after the UK's official inflation rate failed to fall as expected in May, staying at 8.7% - well above the bank's 2% target.

In the minutes alongside the decision, the bank said higher inflation, especially services inflation, meant it had to act faster to bring prices under control.

 

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[Pink Mist]

Reported troll post removed

[Chomper Higgot]

The increase in mortgage repayments as millions of fixed rate mortgage contracts come to an end has for some time been referred as a ‘ticking time bomb’, well the ticking just got louder.

 

Additionally, the number of households holding mortgages has dropped from over 40% to under 30%, due to older people owning outright and younger people being excluded from buying by high costs.

 

This has the effect of placing the burden of the Government’s policy to reduce spending power on a significantly smaller number of people than past interest rises. Therefore to achieve the same restriction in money within the economy interest rates have to go higher than otherwise would needed. 
 

As the months tick by, more fixed term mortgages come to an end, 800,000 by the end of 2023, over two million by the end of 2024

 

Not good news in the run up to bye elections and of course the general election.

And all the while the driving cause of inflation is supply side restrictions within the economy, which will not be fixed by increasing inflation unless doing so creates a recession, although Jeremy Hunt has said he’s content to take the risk.

 

I doubt many mortgage holders will agree, we’ll soon find out.

 

 

https://www.resolutionfoundation.org/publications/the-mortgage-crunch/

 

https://www.ons.gov.uk/economy/inflationandpriceindices/articles/priceseconomicanalysisquarterly/march2022

[nauseus]

People have become far too used to low interest rates.

 

This "shocking" 5% can't be far of the historic average.

[RayC]

5 hours ago, nauseus said:

People have become far too used to low interest rates.

Is that a surprise when the base rate was <1% for 13 years?

 

5 hours ago, nauseus said:

 

This "shocking" 5% can't be far of the historic average.

Maybe not but I don't think many people would have thought there would be - or prepared for - a 2000% increase in base rates (from 0.25% to  5%) within 18 months.

[nauseus]

8 hours ago, RayC said:

Is that a surprise when the base rate was <1% for 13 years?

 

Maybe not but I don't think many people would have thought there would be - or prepared for - a 2000% increase in base rates (from 0.25% to  5%) within 18 months.

Yes. That's because people have become far too used to low interest rates.

[youreavinalaff]

14 hours ago, nauseus said:

People have become far too used to low interest rates.

 

This "shocking" 5% can't be far of the historic average.

Average interest rates since 1970, 8%.

[youreavinalaff]

8 hours ago, RayC said:

Is that a surprise when the base rate was <1% for 13 years?

 

Maybe not but I don't think many people would have thought there would be - or prepared for - a 2000% increase in base rates (from 0.25% to  5%) within 18 months.

Anyone getting a mortgage should have thought about it or should at least have been shown it by their lender at time of application.

 

All the indicators were there for economy issues, inflation rise and interest rate rises.

 

The issue is simple maths. If borrowing at such low rates, such as 2%, it's not in any way inconceivable for rates to double in a short space of time. Then at 4%, it's still conceivable to increase by half in a short space of time. 

 

Interest rates were too low for too long. At 1-2% base rates there is only one way they were going to go.

 

I know people who used low rates to their financial advantage by increasing their mortgage payments and paying off most or all of their mortgage many years early. I also know people who used low rates as an excuse to spend. Lavish overseas holidays, IPhone upgrades as soon as they came out, one or more brand new cars on finance, borrowing more for expensive but not required home decor. Only one of those groups are struggling now.

Edited June 24, 2023 by youreavinalaff

[RayC]

51 minutes ago, nauseus said:

Yes. That's because people have become far too used to low interest rates.

Which, as I stated previously, is hardly a surprise given that they have been at these low levels for 13 years. 

 

If you are implying that individuals should budgeted for a rise in interest rates, then I agree. However, you seem to also be implying that they should have planned for a doubling of their mortgage rates which is what has happened in many cases; that is where we part company.

[Chomper Higgot]

1 hour ago, youreavinalaff said:

Average interest rates since 1970, 8%.

A meaningless statistic to people who’ve only had a mortgage in the past 10 - 15 years, and cold comfort to those already facing significantly higher mortgage payments, now or in the coming months. 

Added to which there are very many people renting in the private sector who are now facing higher rents because their landlord based their buy to rent business on low interest rates and is now passing the mortgage repayment rise to the tenants.

 

All this with elections looming.

 

Edited June 24, 2023 by Chomper Higgot

[BritManToo]

29 minutes ago, RayC said:

If you are implying that individuals should budgeted for a rise in interest rates, then I agree. However, you seem to also be implying that they should have planned for a doubling of their mortgage rates which is what has happened in many cases; that is where we part company.

Anyone that doesn't plan for mortgage interest rates of 6-10% is a fool.

If it were up to me I'd build 1,000,000 Russian style apartment blocks and rent the apartments out for 10 quid a week.

Time to crash the capitalist housing market, make the bourgeois suffer, and the homeless homed

Edited June 24, 2023 by BritManToo

[nauseus]

1 hour ago, RayC said:

Which, as I stated previously, is hardly a surprise given that they have been at these low levels for 13 years. 

 

If you are implying that individuals should budgeted for a rise in interest rates, then I agree. However, you seem to also be implying that they should have planned for a doubling of their mortgage rates which is what has happened in many cases; that is where we part company.

I'm not implying anything. Just stating something that everyone can and should be aware of.

[nauseus]

1 hour ago, Chomper Higgot said:

A meaningless statistic to people who’ve only had a mortgage in the past 10 - 15 years, and cold comfort to those already facing significantly higher mortgage payments, now or in the coming months. 

Added to which there are very many people renting in the private sector who are now facing higher rents because their landlord based their buy to rent business on low interest rates and is now passing the mortgage repayment rise to the tenants.

 

All this with elections looming.

 

Well it means something now, eh?

[RayC]

2 hours ago, youreavinalaff said:

Anyone getting a mortgage should have thought about it or should at least have been shown it by their lender at time of application.

I imagine that most people thinking of taking out a six-figure loan give it a bit of thought. Likewise, for those lending such amounts 

 

2 hours ago, youreavinalaff said:

All the indicators were there for economy issues, inflation rise and interest rate rises.

Really? The average mortgage rate in mid-2019 was 4%;  it is now nearly 8% with further increases possible. With no sign of COVID or the Ukraine war, you would have argued in mid-2019 that the average mortgage rate would double in 3 years?

 

2 hours ago, youreavinalaff said:

 

The issue is simple maths. If borrowing at such low rates, such as 2%, it's not in any way inconceivable for rates to double in a short space of time. Then at 4%, it's still conceivable to increase by half in a short space of time. 

So by this simple arithmetic progression we should expect interest rates to rise and revert to the mean of 8% in a year's time? And then what, a period of stability at 8%? A reverse trend down to what?

 

I think if managing monetary policy was that simple, governments and central banks would have realised it by now.

 

2 hours ago, youreavinalaff said:

Interest rates were too low for too long. At 1-2% base rates there is only one way they were going to go.

Yes at some point, interest rates were bound to rise. However, on its' own that knowledge is fairly useless. The questions were when and by how much?

 

2 hours ago, youreavinalaff said:

I know people who used low rates to their financial advantage by increasing their mortgage payments and paying off most or all of their mortgage many years early. I also know people who used low rates as an excuse to spend. Lavish overseas holidays, IPhone upgrades as soon as they came out, one or more brand new cars on finance, borrowing more for expensive but not required home decor. Only one of those groups are struggling now.

You forget the group in the middle which imo are the majority. What about those who had budgeted carefully and had funds to cover emegencies and, say, a 50% rise in interest rates? And what if these individuals had carefully budgeted that they could still afford to have a 2-week holiday each year, go out once a week, buy the odd gadget every couple of years but who now find that having redirected all their funds that they were spending on this less than extravagant lifestyle, they are still not able to meet their mortgage repayments; their problems are entirely self-inflicted?

[RayC]

1 hour ago, BritManToo said:

Anyone that doesn't plan for mortgage interest rates of 6-10% is a fool.

 

Average rates are now +/-7.5%. Are those who budgeted for 6% fools?

[BritManToo]

7 minutes ago, RayC said:

I imagine that most people thinking of taking out a six-figure loan give it a bit of thought. Likewise, for those lending such amounts 

 

Really? The average mortgage rate in mid-2019 was 4%;  it is now nearly 8% with further increases possible. With no sign of COVID or the Ukraine war, you would have argued in mid-2019 that the average mortgage rate would double in 3 years?

 

So by this simple arithmetic progression we should expect interest rates to rise and revert to the mean of 8% in a year's time? And then what, a period of stability at 8%? A reverse trend down to what?

 

I think if managing monetary policy was that simple, governments and central banks would have realised it by now.

 

Yes at some point, interest rates were bound to rise. However, on its' own that knowledge is fairly useless. The questions were when and by how much?

 

You forget the group in the middle which imo are the majority. What about those who had budgeted carefully and had funds to cover emegencies and, say, a 50% rise in interest rates? And what if these individuals had carefully budgeted that they could still afford to have a 2-week holiday each year, go out once a week, buy the odd gadget every couple of years but who now find that having redirected all their funds that they were spending on this less than extravagant lifestyle, they are still not able to meet their mortgage repayments; their problems are entirely self-inflicted?

Yes,

Because it's wrong to own property as any socialist/Marxist will tell you.

All property is theft! (Proudhon 1840)

[RayC]

38 minutes ago, nauseus said:

I'm not implying anything. Just stating something that everyone can and should be aware of.

Fair enough.

[youreavinalaff]

2 hours ago, Chomper Higgot said:

A meaningless statistic to people who’ve only had a mortgage in the past 10 - 15 years, and cold comfort to those already facing significantly higher mortgage payments, now or in the coming months. 

Added to which there are very many people renting in the private sector who are now facing higher rents because their landlord based their buy to rent business on low interest rates and is now passing the mortgage repayment rise to the tenants.

 

All this with elections looming.

 

Irrelevant post.

 

My comment about average interest rates was in reply to another poster, therefore meaningful.

[RayC]

4 minutes ago, BritManToo said:

Yes,

Because it's wrong to own property as any socialist/Marxist will tell you.

All property is theft! (Proudhon 1840)

Presumably all homeowners are therefore enemies of the proletariat and will need to be lined up against the wall and shot?

 

Going to need a long wall. Someone had better ask the Chinese comrades if we can use theirs.

[BritManToo]

1 minute ago, RayC said:

Presumably all homeowners are therefore enemies of the proletariat and will need to be lined up against the wall and shot?

 

Going to need a long wall. Someone had better ask the Chinese comrades if we can use theirs.

No nee to hurt anyone,

The state should seize all property and assign it's use according to people's needs.

That would immediately solve the UK's current housing crises.

[youreavinalaff]

23 minutes ago, RayC said:

I imagine that most people thinking of taking out a six-figure loan give it a bit of thought. Likewise, for those lending such amounts 

 

Really? The average mortgage rate in mid-2019 was 4%;  it is now nearly 8% with further increases possible. With no sign of COVID or the Ukraine war, you would have argued in mid-2019 that the average mortgage rate would double in 3 years?

 

So by this simple arithmetic progression we should expect interest rates to rise and revert to the mean of 8% in a year's time? And then what, a period of stability at 8%? A reverse trend down to what?

 

I think if managing monetary policy was that simple, governments and central banks would have realised it by now.

 

Yes at some point, interest rates were bound to rise. However, on its' own that knowledge is fairly useless. The questions were when and by how much?

 

You forget the group in the middle which imo are the majority. What about those who had budgeted carefully and had funds to cover emegencies and, say, a 50% rise in interest rates? And what if these individuals had carefully budgeted that they could still afford to have a 2-week holiday each year, go out once a week, buy the odd gadget every couple of years but who now find that having redirected all their funds that they were spending on this less than extravagant lifestyle, they are still not able to meet their mortgage repayments; their problems are entirely self-inflicted?

Interest rates are not " Nearly 8%". That's an exaggeration.

 

My maths was that the smaller the figure the easier it is to double as increases are generally. 25% or .5% so, NO, it does not mean that I think they could be 8% in a years time, although you claim they already are. 

 

Those that budgeted correctly, looked at how interest rates fluctuate and understand that after a 2 year economy shutdown things get worse rather than better are notvstruggling.

 

Too many people go head on thinking if things go wrong someone will bail them out.

Edited June 24, 2023 by youreavinalaff

[RayC]

4 minutes ago, youreavinalaff said:

Irrelevant post.

 

My comment about average interest rates was in reply to another poster, therefore meaningful.

But as Chomper inferred, using historical average interest rates as the basis for deciding whether to take on a mortgage is not a useful metric.

[youreavinalaff]

Just now, RayC said:

But as Chomper inferred, using historical average interest rates as the basis for deciding whether to take on a mortgage is not a useful metric.

I wasn't. I was answering someone's question.

 

However, it is a good idea to check historical figures, why they were such and how did they fluctuate. It gives a fundamental knowledge of economics. Something everyone should have prior to saddling themselves with a 6 figure, 25 year loan. That's the approach I've always taken and it has served me well, along wirh many others i know. Evidence it works.

[RayC]

32 minutes ago, youreavinalaff said:

Interest rates are not " Nearly 8%". That's and exaggeration.

 

My maths was that the smaller the figure the easier it is to double as increases are generally. 25% or .5% so, NO, it does not mean that it's conceivable they could be 8% in a years time, although you claim they already are. 

I am losing count of the number of times you misquote or misinterpret my posts.

 

I did not claim that INTEREST rates were nearly 8%. I stated that average MORTGAGE REPAYMENT RATES were nearly 8%. The actual figure in May was 7.44%. Given the latest rise in base rates on Thursday, that figure will be "nearly 8%" if it isn't already 

 

32 minutes ago, youreavinalaff said:

 

Those that budgeted correctly, looked at how interest rates fluctuate and understand that after a 2 year economy shutdown things get worse rather than better are notvstruggling.

 

Too many people go head on thinking if things go wrong someone will bail them out.

And you know all that for a fact?

[RayC]

34 minutes ago, youreavinalaff said:

I wasn't. I was answering someone's question.

 

However, it is a good idea to check historical figures, why they were such and how did they fluctuate. It gives a fundamental knowledge of economics. Something everyone should have prior to saddling themselves with a 6 figure, 25 year loan. That's the approach I've always taken and it has served me well, along wirh many others i know. Evidence it works.

Taking some historic rates at random from the BoE website, base rates were increased to 13.88% on 28 March 1985. On 4 August 2016 they were reduced to 0.25%: If someone had looked at the average historical base rate on 1/1/00, it would have been over 10% (estimate based on a cursory look; I haven't done the maths).

 

How does that any of that help someone trying to plan their financial future and budget in June 2023?

[RayC]

54 minutes ago, BritManToo said:

No nee to hurt anyone,

The state should seize all property and assign it's use according to people's needs.

Without compensation?

 

54 minutes ago, BritManToo said:

That would immediately solve the UK's current housing crises.

Perhaps. It would also cause an unprecedented outflow of funds from the UK and the likely collapse of the economy.

[youreavinalaff]

1 hour ago, RayC said:

Taking some historic rates at random from the BoE website, base rates were increased to 13.88% on 28 March 1985. On 4 August 2016 they were reduced to 0.25%: If someone had looked at the average historical base rate on 1/1/00, it would have been over 10% (estimate based on a cursory look; I haven't done the maths).

 

How does that any of that help someone trying to plan their financial future and budget in June 2023?

Its really not my fault if you don't understand fundamental economics. I do, and it has served me well.

[RayC]

9 minutes ago, youreavinalaff said:

Its really not my fault if you don't understand fundamental economics. I do, and it has served me well.

A response which, as usual, in no way addresses my question.

 

Reduced to insulting others and misplaced over-confidence in one's own ability and knowledge.

 

A sure sign that you have lost the argument.

Edited June 24, 2023 by RayC
Addition and rephrasing

[youreavinalaff]

41 minutes ago, RayC said:

A response which, as usual, in no way addresses my question.

 

Reduced to insulting others and misplaced over-confidence in one's own ability and knowledge.

 

A sure sign that you have lost the argument.

No insults. Just an observation, based on your questions. 

 

I'm not having an arguement, at least I wasn't aware I was. 

 

My confidence is not misplaced, as can be shown in my own life situation. 

[placeholder]

1 hour ago, youreavinalaff said:

Its really not my fault if you don't understand fundamental economics. I do, and it has served me well.

You've got nothing except insults.