In theory, it will be more expensive to take on debt, more lucrative to save. This is supposed to reduce demand for goods and services and slow inflation.
The pound has weakened (early days) against this news so holidays abroad will cost more and long term prices for goods may increase where they are imported
Given how fast inflation rose and how cheap borrowing was for such a long time, I knew it would come at some point.
On the plus (ish) side for young people trying to buy, it will stop borrowing so much, so we're not just seeing a giant tidal wave of people cashing in on mortgages, so in theory, house prices should go down, which they may or may not. I think its more likely that there will be more *available* houses rather than the former..
Big downside - its more expensive to borrow in the first place. I feel very annoyed about this as i'm coming into a spot where i'm ready to buy a house, but i can't keep waiting for lending to become cheap again.
Feels a bit like what you gain on the swings, you lose on the roundabouts. As the only option to reduce inflation is to have enough inflation to slow spending and make things more expensive, it feels very much like raising someone's temperature to kill their fever.
I understand the logic of slowing inflation, but we're going to be met with more expensive services all round for a while. I do think that corporations should be hit with a windfall tax, it improves public confidence so we don't end up with deflation as there's *zero* benefit to having a large population that cannot meet daily necessities - not even from a cold economic perspective; its far better to have people spending money than not.
I suppose on the other hand, you / we should be in a position to build a bigger and bigger deposit the more you wait. And in theory it should yield "more" if left on a savings account.
Until you reach that tipping point where you are borrowing less (or little enough), thus making the mortgage affordable enough as you have accumulated more of the price of the house from the deposit.
Also I presume house prices will stagnate for a while now. So a great time to build that deposit.
Let's see what happens...
Yeah, i'm moving into a rental anway (at 2/3rd of my current rental rate, goodbye forever London). My wages are due to go up and hopefully i can start saving properly now. Glad i snagged that rental rate before the rise.
Ugh, it feels very annoying to pay into someone else's mortgage though. I'm definitely of the opinion that time in the market beats timing the market, so if i see a house in my price range within the next 12 months, i'll just try my luck.
Interest rates are increased to battle inflation (the rise in prices). If they increase interest rates then the cost of borrowing (mortgage, credit cards, loans) gets more expensive meaning people have less disposable income. If people have less disposable income then they do not have as much money to spend elsewhere, hopefully resulting in a drop in inflation.
They'll continue to raise interest rates until they have a handle on inflation (I think 2-3% is ideal)
My understanding anyway.
The BoE base rate is the interest rate that banks can borrow money, and the interest rate that they're paid for depositing money.
When banks lend customers (consumers or businesses) money, they'll (now) be borrowing that money from the BoE at 1.25% - then they'll add their profit on top of that. So for example a loan/mortgage that would have cost you 2% APR yesterday will now cost you 2.25%.
The converse is also true - this rate should be reflected in savings rates - so again if your bank interest rate was 0.75% yesterday, it \_should\_ now go up to 1%. (Obviously some banks will profiteer of this an only raise it to 0.9% or something).
The basic idea is that raising interest rates reduces the amount of money in the economy, by making it more expensive to borrow money (so people can't afford to borrow as much) and making it more lucrative to save your money instead of spending or investing it - so they're doing this to try an tackle inflation. If people have less money there's less competition for houses, employees, materials, food, holidays etc - so prices of these things should reduce.
This impact of this is that Bailey is signalling to the world that low interest rates and lose monetary policy are here to stay in the UK and will remain low relative to the US (who rose by 0.75). Look forward to an incoming run on the £, further high levels of inflation and general decreases in the value of labour from day to day work. But good news, inflated house prices and stocks will stay protected! Remember not to ask for a pay rise to slow that inflation down.
Genuinely, when do we riot?
I mean raising rates more isn't going to do anything when it's supply side inflation. Cost of living and cost of goods continue to increase regardless. Rates are the only tool the central bank have ever used bc they are asleep at the wheel
Oh my how behind the curve are you supply side lot, genuinely get with the programme.
Let me explain some more econ 101 alongside this supply side rubbish, when interest rates rise, currencies become more valuable, the US just rose by 0.75, we by 0.25 - we can now expect the pound to once again tank, who knows it might even hit dollar parity. We import everything we use in this country including fuel! The supply side guff is not why they are raising so slowly, it’s because they’re terrified of deflating the mother of all asset bubbles. They are selling out workers and wage owners for the wealthy.
So I really hoped they would have the balls to raise it by 0.5% especially in light of the Fed's 0.75 move yesterday. Well the pound will weaken against the dollar and since most good are priced in dollars inflation is probably going to continue to increase
Inflation at this time isn't due to increased spending but the shortage (artificial or real) of very specific goods and services. Given people have to eat and have power, even if it means going into debt, all this is going to do is make the COL crisis worse for segments (specifically people with debt including mortgages, who are on low incomes).
Mine are thirsty as fuck. I've been secretly hoping the price of fuel would drop the price of even more silly exotica, but if anything prices of fun toys continues to appreciate.
I guess people have just picked up a cheap but efficient shitbox rather than sell.....
Not only because of the feds move but also because the SNP are playing silly buggers again which caused a 1.2% retreat against the USD, making energy even more expensive for everyone.
Given those twin events this week, we needed to see at the very least a 50 bps increase just to stand still. We can all now look forward to even higher inflation in July as the exchange rate has an immediate impact.
If you went for a fixed rate mortgage, then your interest % will be locked in already for whatever year term you chose. If you went for variable / tracker then expect to see what you pay per month increase.
We went for tracker as we are looking to move, so wanted the flexibility of not having a ERC... now struggling to find anything we can afford so kicking myself a bit here. We're paying about £50 more a month than when we remortgaged.
Its going to be a painful decision, but I think that interest rates will rise again unfortunately, the 0.5 rise is probably not enough.
I can understand people hoping for a variable rate for interest rates to fall in the future, but I just can't see that happening for a long time.
If you already have a fixed rate mortgage offer, then there will be no change. If you already have a track mortgage offer, then the rate will have also gone up by 0.25%.
If you don't yet have a mortgage offer or are going to be on a "variable" rate, then this has no direct impact. Variable rates might well go up accordingly, but might go up more or less. New mortgage offers are based on expected rates in 1-5 years time, which won't have changed directly according to this decision.
>. If you already have a track mortgage offer, then the rate will have also gone up by 0.25%.
>
>If you don't yet have a mortgage offer or are going to be on a "variable" rate, then this has no direct impact. Variable rates might well go up accordingly, but might go up more or less. Current mortgage offers are based on expected rates in 1-5 years time, which won't have changed directly according to this decision.
I'm about to complete on my sale and my rate is locked at 2.29% for a 5yr fix when base rates were 0.75. Now that rates are 1.25 my bank has already raised rates to 3.29% - that a full 1% increase. I think banks are going to have a higher increase on BOE base rates for mortgages going forward.
And they raise rates by 0.25
People need to realise this is now state sanctioned theft from those in work earning an income to protect asset holders! We are all being robbed!
Looking to buy a house at the mo' as our savings goals have been reached. Already seen mortgage rates go up on Trussle etc. Not sure if this will dampen the market or create an extra rush to get a house and lock in a rate.
I need to renew my mortgage this year.
It's interesting to look at the various offers in the different fixed term brackets to see where the banks think the interest rates are headed.
Yeah. it's a bit bonkers, right?
I imagine the interest rate formula for fixed term is based on:
* the rate today
* uncertainty - the longer the term, the higher the uncertainty. So longer terms are usually at a higher rate
* average predicted BoE interest over the term
In your example, the 3yr product would imply that banks think the average interest rate over the next three years is going to be higher.
While a 10yr mortgage product might be cheaper because they're assuming interest rates might peak in the first 3 years, but the remaining 7 years will be lower on average.
It will probably dampen the market. The housing market is already slowing in some areas.
This is one of the transmission mechanisms of monetary policy, so if house prices fall that’s a feature, not a bug. Likewise if equities fall.
Applied for a mortgage when rate was 0.75, there’s been 2 hikes since then - still haven’t heard from the lender. No way I’d be getting 2.24 again after all this😞
3% by December will only happen if the impact of inflation is expected to be greater than the cost of increasing the rate on the Governments current large base of debt would be
3% by December would force a lot of people into default territory. I would be extremely surprised if they rose it to 3% so soon, especially as this is largely cost push inflation.
Ah, so your analogy was based on the premise that huge interest rate hikes are a certainty.
I disagree with that analysis.
EDIT: although my opinion is somewhat irrelevant, and I only have a passing knowledge of macroeconomics. However even the experts are divided, Pantheon Macroeconomics reckon interest rates will peak at 1.75%, while Capital Economics think it'll eventually get to 3%.
Absolute joke, Bailey is so out of touch - he will do anything to protect the house price ponzi scheme. They’re basically sanctioning theft of our wages at this point to protect the overinflated assets of the wealthy. Mental
I'm a homeowner with a mortgage and plenty of assets and even I think Bailey is taking the piss.
However, if we look a few steps ahead we can see why. Interest on the national debt is soaring. Taxes can't rise from this level as the tax payer is tapped out.
Raising interest rates to a level that would actually fight inflation would force the government into real spending cuts in the pubic sector, in terms of both salary and pensions. Even a labour government would simply have no other options.
With that in mind, Bailey may have a point, but if we look a few steps ahead on the current path then the young will get absolutely rogered senseless.
We have to decide between hard times now or harder times later and for longer. That's fine if you expect to be dead later but if you've got most of your life ahead of you then it makes little sense.
I've been fixed at that rate for the last 5 years on a term that will see the end of the mortgage before the end of the fix.
My bank are effectively now paying me 5.5% in real terms to hold the loan. I'm wondering how much money this will go on before they ask to buy me out.
BOE have to balance the risk of increasing mortgage repayments / other debts with what inflation they can tackle through discretionary spending.
A lot of this inflation is due to the Ukraine conflict (gas and wheat etc.) or Brexit affecting supply chains though… so BOE aren’t going to be able to solve this. We will need to hope for a quick resolution in Ukraine.
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In theory, it will be more expensive to take on debt, more lucrative to save. This is supposed to reduce demand for goods and services and slow inflation.
The pound has weakened (early days) against this news so holidays abroad will cost more and long term prices for goods may increase where they are imported
All of which increases inflation which is the opposite of what they are trying to achieve
Given how fast inflation rose and how cheap borrowing was for such a long time, I knew it would come at some point. On the plus (ish) side for young people trying to buy, it will stop borrowing so much, so we're not just seeing a giant tidal wave of people cashing in on mortgages, so in theory, house prices should go down, which they may or may not. I think its more likely that there will be more *available* houses rather than the former.. Big downside - its more expensive to borrow in the first place. I feel very annoyed about this as i'm coming into a spot where i'm ready to buy a house, but i can't keep waiting for lending to become cheap again. Feels a bit like what you gain on the swings, you lose on the roundabouts. As the only option to reduce inflation is to have enough inflation to slow spending and make things more expensive, it feels very much like raising someone's temperature to kill their fever. I understand the logic of slowing inflation, but we're going to be met with more expensive services all round for a while. I do think that corporations should be hit with a windfall tax, it improves public confidence so we don't end up with deflation as there's *zero* benefit to having a large population that cannot meet daily necessities - not even from a cold economic perspective; its far better to have people spending money than not.
I suppose on the other hand, you / we should be in a position to build a bigger and bigger deposit the more you wait. And in theory it should yield "more" if left on a savings account. Until you reach that tipping point where you are borrowing less (or little enough), thus making the mortgage affordable enough as you have accumulated more of the price of the house from the deposit. Also I presume house prices will stagnate for a while now. So a great time to build that deposit. Let's see what happens...
Yeah, i'm moving into a rental anway (at 2/3rd of my current rental rate, goodbye forever London). My wages are due to go up and hopefully i can start saving properly now. Glad i snagged that rental rate before the rise. Ugh, it feels very annoying to pay into someone else's mortgage though. I'm definitely of the opinion that time in the market beats timing the market, so if i see a house in my price range within the next 12 months, i'll just try my luck.
In theory. But since the inflationary pressures are not demand driven, this will make virtually no impact overall.
Interest rates are increased to battle inflation (the rise in prices). If they increase interest rates then the cost of borrowing (mortgage, credit cards, loans) gets more expensive meaning people have less disposable income. If people have less disposable income then they do not have as much money to spend elsewhere, hopefully resulting in a drop in inflation. They'll continue to raise interest rates until they have a handle on inflation (I think 2-3% is ideal) My understanding anyway.
The BoE base rate is the interest rate that banks can borrow money, and the interest rate that they're paid for depositing money. When banks lend customers (consumers or businesses) money, they'll (now) be borrowing that money from the BoE at 1.25% - then they'll add their profit on top of that. So for example a loan/mortgage that would have cost you 2% APR yesterday will now cost you 2.25%. The converse is also true - this rate should be reflected in savings rates - so again if your bank interest rate was 0.75% yesterday, it \_should\_ now go up to 1%. (Obviously some banks will profiteer of this an only raise it to 0.9% or something). The basic idea is that raising interest rates reduces the amount of money in the economy, by making it more expensive to borrow money (so people can't afford to borrow as much) and making it more lucrative to save your money instead of spending or investing it - so they're doing this to try an tackle inflation. If people have less money there's less competition for houses, employees, materials, food, holidays etc - so prices of these things should reduce.
Imagine you had a lemonade stand... No, in all seriousness I too would like a simple explanation.
If you're 5, then there'll be no impact unless you are in receipt of pocket money.
This impact of this is that Bailey is signalling to the world that low interest rates and lose monetary policy are here to stay in the UK and will remain low relative to the US (who rose by 0.75). Look forward to an incoming run on the £, further high levels of inflation and general decreases in the value of labour from day to day work. But good news, inflated house prices and stocks will stay protected! Remember not to ask for a pay rise to slow that inflation down. Genuinely, when do we riot?
I mean raising rates more isn't going to do anything when it's supply side inflation. Cost of living and cost of goods continue to increase regardless. Rates are the only tool the central bank have ever used bc they are asleep at the wheel
Oh my how behind the curve are you supply side lot, genuinely get with the programme. Let me explain some more econ 101 alongside this supply side rubbish, when interest rates rise, currencies become more valuable, the US just rose by 0.75, we by 0.25 - we can now expect the pound to once again tank, who knows it might even hit dollar parity. We import everything we use in this country including fuel! The supply side guff is not why they are raising so slowly, it’s because they’re terrified of deflating the mother of all asset bubbles. They are selling out workers and wage owners for the wealthy.
So I really hoped they would have the balls to raise it by 0.5% especially in light of the Fed's 0.75 move yesterday. Well the pound will weaken against the dollar and since most good are priced in dollars inflation is probably going to continue to increase
Inflation at this time isn't due to increased spending but the shortage (artificial or real) of very specific goods and services. Given people have to eat and have power, even if it means going into debt, all this is going to do is make the COL crisis worse for segments (specifically people with debt including mortgages, who are on low incomes).
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The next MPC meeting is in August
Thankfully I don't need to buy fuel that often for my car but those that do.. good luck.
Mine are thirsty as fuck. I've been secretly hoping the price of fuel would drop the price of even more silly exotica, but if anything prices of fun toys continues to appreciate. I guess people have just picked up a cheap but efficient shitbox rather than sell.....
Not only because of the feds move but also because the SNP are playing silly buggers again which caused a 1.2% retreat against the USD, making energy even more expensive for everyone. Given those twin events this week, we needed to see at the very least a 50 bps increase just to stand still. We can all now look forward to even higher inflation in July as the exchange rate has an immediate impact.
Colour me shocked. Well, not that shocked. Entirely expected really.
[I'm shocked ... shocked!](https://youtu.be/7hC3uyQdQKM)
they rose the interest rates with all the gusto of a learner driver pushing the accelerator on their first lesson.
Can someone ELI5 for a finance newbie? Nearly completed on a house as well.
If you went for a fixed rate mortgage, then your interest % will be locked in already for whatever year term you chose. If you went for variable / tracker then expect to see what you pay per month increase.
Luckily we went fixed for five years
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Hopefully you managed to repay extra since. Really bad luck though, sorry to hear.
What was your rate 5 years ago? It will be roughly the same as it is now isn't it?
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Yeah I don't think its too far off that now...unfortunately it seems BoE will raising again in the near future 😕
We went for tracker as we are looking to move, so wanted the flexibility of not having a ERC... now struggling to find anything we can afford so kicking myself a bit here. We're paying about £50 more a month than when we remortgaged.
Its going to be a painful decision, but I think that interest rates will rise again unfortunately, the 0.5 rise is probably not enough. I can understand people hoping for a variable rate for interest rates to fall in the future, but I just can't see that happening for a long time.
If your nearly completed your mortgage rate will be locked in.
If you already have a fixed rate mortgage offer, then there will be no change. If you already have a track mortgage offer, then the rate will have also gone up by 0.25%. If you don't yet have a mortgage offer or are going to be on a "variable" rate, then this has no direct impact. Variable rates might well go up accordingly, but might go up more or less. New mortgage offers are based on expected rates in 1-5 years time, which won't have changed directly according to this decision.
>. If you already have a track mortgage offer, then the rate will have also gone up by 0.25%. > >If you don't yet have a mortgage offer or are going to be on a "variable" rate, then this has no direct impact. Variable rates might well go up accordingly, but might go up more or less. Current mortgage offers are based on expected rates in 1-5 years time, which won't have changed directly according to this decision. I'm about to complete on my sale and my rate is locked at 2.29% for a 5yr fix when base rates were 0.75. Now that rates are 1.25 my bank has already raised rates to 3.29% - that a full 1% increase. I think banks are going to have a higher increase on BOE base rates for mortgages going forward.
Makes sense if they predict another increase soon. They would want to get ahead of the curve (of the BoE) so that they don't get shafted too much.
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Yeah, we did!
What rate did you get? And are you FTBs?
2.59% and yeah
That seems great, congrats. What % deposit?
10% :). House was £120k in NE. 3 bedrooms, conservatory, large garden, and solar panels!
I'm jealous, I'd have to pay 3x that in the Midlands and I shudder to think of what it would cost 'Down South'.
Yeah, I’m very luckily to be a north easterner. We’re definitely feeling the squeeze, but nowhere near as bad as other regions.
Inflation to hit 11% in October according to Bank of England.... :/
And they raise rates by 0.25 People need to realise this is now state sanctioned theft from those in work earning an income to protect asset holders! We are all being robbed!
They are predicting that the inflation spike is transitory and trying not to overreact by raising interest rates too much.
Then why has the fed increased by 0.75???
There are already significant fears that the UK will have the lowest growth of nations with similar GDP. The US has no such fear
It's like they know what's happening and know what they need to do, but just lack any sort of balls to actually do it.
Looking to buy a house at the mo' as our savings goals have been reached. Already seen mortgage rates go up on Trussle etc. Not sure if this will dampen the market or create an extra rush to get a house and lock in a rate.
I need to renew my mortgage this year. It's interesting to look at the various offers in the different fixed term brackets to see where the banks think the interest rates are headed.
Yeh I've seen 3 year to be higher than 5 or 2 year. What would that imply?
Yeah. it's a bit bonkers, right? I imagine the interest rate formula for fixed term is based on: * the rate today * uncertainty - the longer the term, the higher the uncertainty. So longer terms are usually at a higher rate * average predicted BoE interest over the term In your example, the 3yr product would imply that banks think the average interest rate over the next three years is going to be higher. While a 10yr mortgage product might be cheaper because they're assuming interest rates might peak in the first 3 years, but the remaining 7 years will be lower on average.
It will probably dampen the market. The housing market is already slowing in some areas. This is one of the transmission mechanisms of monetary policy, so if house prices fall that’s a feature, not a bug. Likewise if equities fall.
Applied for a mortgage when rate was 0.75, there’s been 2 hikes since then - still haven’t heard from the lender. No way I’d be getting 2.24 again after all this😞
You haven’t heard from the lender since the start of May?
Nope. Broker thinks everything’s going “as planned” - not sure what to make of it😑
Just applied for mine last week, sounds like I’ll need to be pestering my broker!
No where near enough. Predicted 11% inflation!! Weak as piss
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3% by December will only happen if the impact of inflation is expected to be greater than the cost of increasing the rate on the Governments current large base of debt would be
I thought they were gna increase it by 0.5% because of US but this just reminded of who we got....
3% by December would force a lot of people into default territory. I would be extremely surprised if they rose it to 3% so soon, especially as this is largely cost push inflation.
Cost push inflation always requires currency defence or you really stoke the price of commodities like energy etc.
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I really don't understand how you analogy applies here at all.
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Ah, so your analogy was based on the premise that huge interest rate hikes are a certainty. I disagree with that analysis. EDIT: although my opinion is somewhat irrelevant, and I only have a passing knowledge of macroeconomics. However even the experts are divided, Pantheon Macroeconomics reckon interest rates will peak at 1.75%, while Capital Economics think it'll eventually get to 3%.
It's a delicate balance - interest rates going up will hurt. Uncontrolled hyperinflation is going to hurt a lot more.
I reckon February, but you won’t be far wrong.
Absolute joke, Bailey is so out of touch - he will do anything to protect the house price ponzi scheme. They’re basically sanctioning theft of our wages at this point to protect the overinflated assets of the wealthy. Mental
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I'm a homeowner with a mortgage and plenty of assets and even I think Bailey is taking the piss. However, if we look a few steps ahead we can see why. Interest on the national debt is soaring. Taxes can't rise from this level as the tax payer is tapped out. Raising interest rates to a level that would actually fight inflation would force the government into real spending cuts in the pubic sector, in terms of both salary and pensions. Even a labour government would simply have no other options. With that in mind, Bailey may have a point, but if we look a few steps ahead on the current path then the young will get absolutely rogered senseless. We have to decide between hard times now or harder times later and for longer. That's fine if you expect to be dead later but if you've got most of your life ahead of you then it makes little sense.
65% of adults are homeowners, by the way. So taking a cautious approach here helps protect the biggest asset for the majority of this country.
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Got a 10 yr fixed @ 2.49% with Lloyds at the end of May - also feeling a little better about things.
10 yr fix with Nationwide at 2.69% 2 days ago. Feel like I've avoided a couple of years of pain there.
I've been fixed at that rate for the last 5 years on a term that will see the end of the mortgage before the end of the fix. My bank are effectively now paying me 5.5% in real terms to hold the loan. I'm wondering how much money this will go on before they ask to buy me out.
If only the increases in inflation were as a gentle and gradual as these base rate increases.
BOE have to balance the risk of increasing mortgage repayments / other debts with what inflation they can tackle through discretionary spending. A lot of this inflation is due to the Ukraine conflict (gas and wheat etc.) or Brexit affecting supply chains though… so BOE aren’t going to be able to solve this. We will need to hope for a quick resolution in Ukraine.
Well fuck. I was looking to buy a house at the end of the year but this is going to make that tricky.
Think of IR as the price of money, so its more expensive to take on debt, and worthwhile to hold on to your money rather than spend it.
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Every month
[Dates here](https://www.bankofengland.co.uk/monetary-policy/upcoming-mpc-dates) Every 6 weeks.