An uncomfortable truth about mortgage rates
Conservative MPs are calling on the PM to help mortgage holders as it is predicted the base rate will go up to 6 per cent this year.
Itās unlikely Rishi Sunak will help, however, because if he does, we will be back where we were during the āmini-Budgetā, when the Government was working in opposition to the Bank of England.
Clobbering people with mortgages is the Bankās main tool for lowering inflation. By raising rates, it increases our mortgages, we have less money to pay Ā£7 for Lurpak and the margarine makers (in theory) change their pricing.
It is a very blunt tool; only a third of us have a home that is being paid off with a mortgage. This third is being hammered. Another third is renting, and having a terrible time too, and the final third own their homes outright.
These older home owners will be feeling far less pain. Sure their home may go down in value a bit, but hey ho.
Some readers have been in contact to say a better way would be to tax people more. This way you could suck the money out of our wallets more universally, so the pain isnāt so concentrated.
However, doing this in a fair way will be tricky. The uncomfortable truth is rate increases are meant to hurt, and thatās the point, and the calls for help will likely go unanswered, at least meaningfully.
The Bank and the Government are united: inflation must come down. But it will be a painful journey to get there.
