Saturday, Dec 22, 2012

High Debt, Flat Wages and Rising Interest Rates but what about Inflation

Guardian: Christmas food handouts double as millions face 'financial precipice'

Article discusses Food Banks but contains much more than the title suggests. Excellent underpinning information comes from various sources including the Resolution Foundation who are well worth checking out. The foundation calculates that millions of households with low to middle incomes will be pushed close to the edge if they are unable to reduce their debts, before the cost of borrowing returns to more normal levels. Inflation is also mentioned but the connection is not made to the double edged sword the UK is balanced on especially when 2.4 million households with a mortgage (one in five) are spending more than 25% of their gross income on mortgage repayments when interest rates are at just 0.5%. Before the 2000s debt boom only 15% of households were in this position when IRs were 7%.

Posted by enuii @ 09:03 PM (1726 views) Add Comment

6 Comments

1. hpwatcher said...

Interest rates aren't going to be going up for a long time, it will end in a currency crisis before that happens.

Saturday, December 22, 2012 09:34PM Report Comment
 

2. alan said...

Anecdotally, I volunteered at a food bank last week, for one day.

Almost everyone there was on benefits. Some hadn't "checked in" so had forfeited some/part of their allowances. Numbers were up around 20 to 30% on last year. Money management seemed to be challenging to many.

A couple of big supermarket chains gave pallet loads of food which couldn't be delivered to paying customers ordering on-line, some stuff was slightly out of date. Some local churches gave generously.

The article comments on "...at a time when interest rates are at just 0.5%..etc". In practice, many people I know are paying 4% to 5% for mortgage interest. I think the article was being unduly alarmist there, but maybe that's what the Guardian readership likes to see.... cue for: national collapse due to Tory mismanagement.

Saturday, December 22, 2012 09:39PM Report Comment
 

3. tenyearstogetmymoneyback said...

"also highlights how 2.4 million households with a mortgage (one in five) are spending more than 25% of their gross income on mortgage repayments alone – at a time when interest rates are at just 0.5%"

Being well into this category, I couldn't understand what all the alarm was about. About 4/5th of each payment I make reduces the amount I owe. With a mortgage interest rate of 4% and the typical savings acoount offering about 0.5% then there is very little point in saving if you have a mortgage that needs paying off.

The situation this time seems to be completely different from the nineties when about 90% of my payments were interest.

Sunday, December 23, 2012 09:17AM Report Comment
 

4. Jill said...

tenyearstogetmymoneyback: What you're describing sounds like a mortgage amortising, not a societal trend. Mortgages are set up so that payments are mostly interest at the beginning and the amount of principle paid in each payment increases as the debt is paid off. Fifteen years on, a mortgage payment will normally be around 4/5 principle, which is a nice position for the borrower to be in after those very painful first years. This is illustrated rather well here: http://www.creditkarma.com/calculators/amortization

alan: The interest rates charged on mortgages are normally a handful of points above the basic Bank of England rate. The rates on those 4% to 5% mortgages, assuming they are trackers, should go up if the Bank of England rate does. If the rates are fixed and the BoE rate rises, then the borrower gets a great bargain for the duration of the fixed term.

Sunday, December 23, 2012 06:34PM Report Comment
 

5. peter_2008 said...

Ok, first, what exactly does "25% of their gross income on mortgage repayments" mean? Is that the % of pre tax wage spent on paying back the capital + interest of the mortgage? If so, isn't that pretty normal, if not on the lower side? I thought the critical number was 35% - 40%?

Also in the news, "Government force drug dealers to reduce price by 80%, and now wonder why the street is full of junkies."

Monday, December 24, 2012 03:00AM Report Comment
 

6. Striebs said...

The Guardianista's are talking about an "assault on benefits" by those evil Tories .

What would Beveridge say about the way Labour destroyed the welfare state by ever more and higher benefits in an effort to buy votes ?

Even when the damage from the mass expansion of credit has been done the effects of 5 million immigrants will remain .

Friday, December 28, 2012 01:21AM Report Comment
 

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