Interest rates

[andyinluton]

Sorry.
I meant from my current payments.

Moving from a 1.82% to 5.35%

Understood, I was paying £1500 a month on a £60k mortgage at one point in the 80s so doesn't sound too bad at all in comparison.

Its the Gas & Electric thats annoying me, Bulb have decided that they will increase my direct debit to over £950 a month, this is so that I will have built up a buffer to cover their predicted winter bills. Apparently you are not allowed to disagree & the only course of action is to cancel the direct debit.

 

[Amarillo]

Barclays just increased their 10 year fixed by 0.8%.
Had I been signing up today, my mortgage payments would’ve increased by another £700 a month. Within a month, rates have ballooned very quickly, it really is frightening times.
My outstanding balance is only £360k which isn’t much in this day an age.

I feel really sorry for millions of families up and down the country that will need to find the extra to cover their mortgages…

Yes- it’s a pretty desperate situation for those on variable rates and soon to come off fixed rates.

Our residential mortgage is comparatively small (£57 K) and is fixed at 2.49% until November 2028. But we also have three BTL mortgages of £90K, £80K and £70K fixed at 2.19% until November next year.

By playing a bit of financial wizardry we think we can redeem the £80K and £70K BTLs by next November. But even then we fully expect the interest payments on the one remaining BTL to be at least as much as we are paying now for all three.

And we are the very fortunate ones.

 

[Whistler]

Its the Gas & Electric thats annoying me, Bulb have decided that they will increase my direct debit to over £950 a month, this is so that I will have built up a buffer to cover their predicted winter bills. Apparently you are not allowed to disagree & the only course of action is to cancel the direct debit.

How do you have a bill that size? That is not far off our annual bill for last year. Bulb have actually just written to us and lowered our payments as they think our buffer is enough.

Sent from my SM-A515F using Tapatalk

 

[Amarillo]

How do you have a bill that size? That is not far off our annual bill for last year. Bulb have actually just written to us and lowered our payments as they think our buffer is enough.

Sent from my SM-A515F using Tapatalk

My DD with EDF has been increased from £173 pm to £407 pm. But at least I know the reason why. The smart meter for gas is broken and they’ve overestimated my gas use by 500 m^3.

I’m happy cos I can now use the 500m^3, pre paid for at a lower rate, now prices have skyrocketed.

 

[andyinluton]

How do you have a bill that size?

That’s what I said! I recon based on last years usage x todays rates it should be about £300 - £350

 

[pjm-84]

Crumbs thats our mortgage at the current interest rate

 

[johnyboy]

Understood, I was paying £1500 a month on a £60k mortgage at one point in the 80s so doesn't sound too bad at all in comparison.

Its the Gas & Electric thats annoying me, Bulb have decided that they will increase my direct debit to over £950 a month, this is so that I will have built up a buffer to cover their predicted winter bills. Apparently you are not allowed to disagree & the only course of action is to cancel the direct debit.

You can challenge... it must be reasonable and fair... check https://www.moneysavingexpert.com/utilities/lower-energy-direct-debits/#calc

 

[Amarillo]

Base rates unlikely to rise above 5% says the Bank of England.

Interest rates unlikely to rise above 5%, says Bank of England official | Interest rates | The Guardian

Ben Broadbent says increase already priced into markets would deliver ‘pretty material’ hit to economy

amp.theguardian.com

 

[willwander]

Base rates unlikely to rise above 5% says the Bank of England.

Interest rates unlikely to rise above 5%, says Bank of England official | Interest rates | The Guardian

Ben Broadbent says increase already priced into markets would deliver ‘pretty material’ hit to economy

amp.theguardian.com

Given up on inflation then

 

[soulstyledevon]

Given up on inflation then

Is inflation a problem when people stop spending…?

 

[andyinluton]

Is inflation a problem when people stop spending…?

Yes.

If it was only luxury & discretionary products that were going up it wouldn't be a problem you can choose to cut back expenditure.
When its energy, fuel, food & mortgages you don't have a choice.

 

[sidepod]

Yes.

If it was only luxury & discretionary products that were going up it wouldn't be a problem you can choose to cut back expenditure.
When its energy, fuel, food & mortgages you don't have a choice.

This is the bit I don’t understand. Ok it’s theoretically inflation but it’s not our fault or caused by a consumer boom and yet, we pay the same price!

 

[Amarillo]

Is inflation a problem when people stop spending…?

Prices should stabilise or even come down as people stop spending.

 

[Amarillo]

Yes.

If it was only luxury & discretionary products that were going up it wouldn't be a problem you can choose to cut back expenditure.
When its energy, fuel, food & mortgages you don't have a choice.

There are things that can be done.

Turn down the thermostat and wear an extra sweater.

Drive less, cycle more.

Drop the Chablis in favour of Liebfraumilch.

OK, mortgages are a bit harder, but that’s part of the point of raising interest rates. Restrict peoples spending power with higher borrowing costs to bring down inflation.

 

[Hawthorn37]

Crikey - if you thought now Liz has gone the markets will stabilise - BBC’s Fisal Islam’s report will dissuade any complacency! The leadership election next week has the potential to create even more turmoil and impact on interest rates as the candidates may trash current promises and policies creating yet more uncertainty. You couldn’t write it !!

 

[willwander]

Prices should stabilise or even come down as people stop spending.

Wait till the US starts hiking

 

[andyinluton]

OK, mortgages are a bit harder, but that’s part of the point of raising interest rates. Restrict peoples spending power with higher borrowing costs to bring down inflation.

It only restricts the spending power of those with mortgages, all those wrinklies with lots of savings now have more spending power as they are getting some interest on their savings.

All those with mortgages now have to ask rather employers for a pay rise, that pushes costs up & makes everything more expensive which pushes up inflation....

 

[Amarillo]

It only restricts the spending power of those with mortgages, all those wrinklies with lots of savings now have more spending power as they are getting some interest on their savings.

All those with mortgages now have to ask rather employers for a pay rise, that pushes costs up & makes everything more expensive which pushes up inflation....

Employers go bust, employees on the dole. Less cash to spend, prices drop.

Interest rate hikes are a brutal tool.

 

[andyinluton]

Employers go bust, employees on the dole. Less cash to spend, prices drop.

Interest rate hikes are a brutal tool.

What prices are going to drop that will reduce inflation?
The items that need to drop to reduce inflation are not within the consumers control, if everyone reduced their use of electricity, the cost per unit won't drop as its been capped at a figure lower than it should be.
Fuel - unless we have a reduction in use along the lines of the first lockdown, a change in domestic consumption isn't going to affect the cost.
Housing costs - dictated by interest rates so not in the consumers capacity to change.

 

[Hawthorn37]

Thinking of digging in, and coming out in spring

 

[Amarillo]

What prices are going to drop that will reduce inflation?
The items that need to drop to reduce inflation are not within the consumers control, if everyone reduced their use of electricity, the cost per unit won't drop as its been capped at a figure lower than it should be.
Fuel - unless we have a reduction in use along the lines of the first lockdown, a change in domestic consumption isn't going to affect the cost.
Housing costs - dictated by interest rates so not in the consumers capacity to change.

OK prices may not drop, only rise at a slower rate: inflation drops.

 

[66tim99]

Employers go bust, employees on the dole. Less cash to spend, prices drop.

Interest rate hikes are a brutal tool.

Dumb question alert:
The bank has already borrowed to fund your mortgage, so...When interest rates rise, who ultimately receives the additional interest payments?

 

[The Tall Luthier]

There are things that can be done.

Turn down the thermostat and wear an extra sweater.

Drive less, cycle more.

Drop the Chablis in favour of Liebfraumilch.

OK, mortgages are a bit harder, but that’s part of the point of raising interest rates. Restrict peoples spending power with higher borrowing costs to bring down inflation.

In normal times this correct.

Our inflation spike is not caused by excess spending, fuel and wheat supplies have been constrained by the Russian’s war. It is a supply side problem, not a demand side one.

Raising interest rates does affect inflation but not because it encourages average people to save more and spend less.

 

[Velma's Dad]

Dumb question alert:
The bank has already borrowed to fund your mortgage, so...When interest rates rise, who ultimately receives the additional interest payments?

Your assumption isn't quite right.

Firstly, there's not a one-to-one relationship between the amount the bank has borrowed, and the amount it has lent out at any time. Using the concept of "fractional reserve banking" the bank creates new money out of nowhere when it creates a loan account/mortgage. To meet banking regulations, it only needs to take deposits from savers on a smaller amount to stay within its regulated reserve or capital requirement levels.

That's how banks create new credit virtually out of thin air, which then enables people to get credit to buy stuff, especially assets like houses, which increases what people are willing and able to offer, for a relatively fixed base of those assets, and hence balloons debt in the economy.

Banks are constantly tuning their reserves by borrowing and lending between each other, and with the central bank. What is clear is that the interest rate they charge you is always higher tan the interbank rates - that's how they cover their credit risk (ie you might stop paying your mortgage) and of course generate profit.

To your specific question: when the bank imposes higher interest rates on mortgage holders, it is pocketing the extra interest you have to pay. But against that the bank is likely to be having to pay higher rates to borrow (part of) that back on the interbank markets if the base rate has risen, and also its risk levels may have changed so it might anticipate higher mortgage defaults.

I'm not a banker or an economist so if there's one on here maybe they can give a better answer.

 

[andyinluton]

Your assumption isn't quite right.

What is clear is that the interest rate they charge you is always higher tan the interbank rates - that's how they cover their credit risk (ie you might stop paying your mortgage) and of course generate profit.

No its not!
The interest that they charge is higher than they anticipate interbank rates are going to be.
Theres currently an awful lot of people with mortgages on fixed rate deals that are paying less than interbank rates.
If that goes on too long combined with falling house prices the bank can be left loosing money on mortgages that are backed by insufficient security.
Northern Rock know a thing or two about that.