Oh well, I am not going to bother with structured products. It now looks even more likely there will be simple 1 year fixes with well respected names, 5% at least until year end. If as @IdleHans does you invest in tranches over time you have the flexibility to put some money back in to equities also over time as we get a clearer idea of how the world economy is going to develop.
Works for me. But I’m in the game of protecting what I have, due to my life stage.
Seems to me there will be wider implications for equity and bond markets and the industry around them.
I hope you are also in the game of spending some/most/all of it!
Oh sure. “Capital projects” in the last year on the house,the cottage, and a new car. There would be more if only there were the people to do it. Labour shortages a big issue here in many areas. I became a small time political donor last year too. Not to mention regularly rolling around central Europe on trains and staying in decent hotels along the way ( living the dream😂)
All that said, though, i have to bear in mind that I’m not blessed with external pensions. Just the UK State standard plus something from the Czech state which is about half the UK one. That’s why I’ve belatedly become focused on generating income.
Good stuff, whilst income is great, capital can be (moderately) spent. I intend to spend all/most of mine before I pop my clogs. The kids can have the house.
Oh well, I am not going to bother with structured products. It now looks even more likely there will be simple 1 year fixes with well respected names, 5% at least until year end. If as @IdleHans does you invest in tranches over time you have the flexibility to put some money back in to equities also over time as we get a clearer idea of how the world economy is going to develop.
Works for me. But I’m in the game of protecting what I have, due to my life stage.
Seems to me there will be wider implications for equity and bond markets and the industry around them.
Good idea not to touch structured products IMO. I was "advised" to invest in some of these by my disastrous Bangkok-based English IFA. Fortunatley two of them gave me a good profit but the third wiped out all that profit and a bit more.
It's like investing your hard-earned money on the 3:30 at Ripon!
Oh well, I am not going to bother with structured products. It now looks even more likely there will be simple 1 year fixes with well respected names, 5% at least until year end. If as @IdleHans does you invest in tranches over time you have the flexibility to put some money back in to equities also over time as we get a clearer idea of how the world economy is going to develop.
Works for me. But I’m in the game of protecting what I have, due to my life stage.
Seems to me there will be wider implications for equity and bond markets and the industry around them.
Good idea not to touch structured products IMO. I was "advised" to invest in some of these by my disastrous Bangkok-based English IFA. Fortunatley two of them gave me a good profit but the third wiped out all that profit and a bit more.
It's like investing your hard-earned money on the 3:30 at Ripon!
i managed currency exposure in a couple of previous jobs and the banks were always tremendously keen to offer structured products. My role was simply to try and preserve margins when we were buying goods in USD and selling either in sterling or EUR - very simple really, and some forward exchange contracts or occasionally options would protect our relatively high margins in a simple way. But they were always offering structured products and although I understood them at the time (dont ask me now) I didnt think they added any benefit to the business, simply a layer of complexity, particularly for me as I was working for US companies and having to explain even basic foreign exchange concepts to my bosses was a nightmare as theyre so dollar-centric.
Also made accounting for these contracts more complex, work I could well do without. With all these things, there's some bugger in the middle taking a fat cut at your risk not theirs. If you dont understand them, leave well alone. If you do understand them, leave well alone.
Nothing wrong with Structured Products as long as you know what you are getting into.....but then I have skin in the game.
97% of SP's that I've advised on have gone on to give a positive return.
2% have returned just the initial investment with no gain.
1% have returned a negative figure. This was a fairly niche one that invested in just 4 shares, and 1 share never recovered from a downgrade it received 2 years after the launch.
However, I am loathe to advise on them following the changes to the CGT allowance.
Best financial plan for me will be to try and convert a deposit into a potential full sum to purchase a house in the next 1/3 years. Theoretically, prices should drop sharply for certain types/areas following a housing market crash.
Best financial plan for me will be to try and convert a deposit into a potential full sum to purchase a house in the next 1/3 years. Theoretically, prices should drop sharply for certain types/areas following a housing market crash.
Problem is even if prices drop dramatically that’ll be eaten up and some by increased interest rates.
a £125k mortgage today is the same as a £225k mortgage 18 months ago.
you need the reverse perfect storm of prices AND interest rates dramatically reducing.
Best financial plan for me will be to try and convert a deposit into a potential full sum to purchase a house in the next 1/3 years. Theoretically, prices should drop sharply for certain types/areas following a housing market crash.
Problem is even if prices drop dramatically that’ll be eaten up and some by increased interest rates.
a £125k mortgage today is the same as a £225k mortgage 18 months ago.
you need the reverse perfect storm of prices AND interest rates dramatically reducing.
If I read it correctly @mendonca was saying that he is hoping his (now) deposit would be enough in a few years time to buy a property outright (without a mortgage).
Sorry lad but that really isn't going to happen, unless you are sitting on a 75% deposit now.
Property prices might drop but I probably only by around 10%. Still too much demand & not enough supply.
What am I missing with this. To my basic mind the bank of England raising interest rates again does nothing for inflation, and if I have understood the rationale for raising rates to combat inflation they will need to go a hell of a lot higher than half a percent a month and who does that help? Nobody at the bottom/most of the country. If people start defaulting on mortgages because interest has got too high that isn't going to solve a housing problem
Its good for people with no mortgage who have lots of savings and that has to be the minority of the population and savers are just that, savers, they don't spend. The people getting rumped do spend but are less able to now
Every time I think I understand money and finance something like this happens and I'm back to square 1 again
What am I missing with this. To my basic mind the bank of England raising interest rates again does nothing for inflation, and if I have understood the rationale for raising rates to combat inflation they will need to go a hell of a lot higher than half a percent a month and who does that help? Nobody at the bottom/most of the country. If people start defaulting on mortgages because interest has got too high that isn't going to solve a housing problem
Its good for people with no mortgage who have lots of savings and that has to be the minority of the population and savers are just that, savers, they don't spend. The people getting rumped do spend but are less able to now
Every time I think I understand money and finance something like this happens and I'm back to square 1 again
You said it in the last sentence of your second to last paragraph....."the people getting rumped do spend but are less able now".
That's all there is to it. The idea (flawed in my mind) is that by raising the cost of borrowing (not just to home owners but business as well) then people have less to spend. If they spend less then prices wont go up so fast. Inflation is too much money chasing too few goods. By making people have less money in their pockets means they cant spend so much......so prices stop rising.
But as Blackadder once said. "There was one thing wrong with their plan. It was bollox".
The only way this current strategy will work is when mortgage payers start coming off their 5 year fixed rate of 0.99% and have to go onto a new rate of 5%. That is going to hurt. But the hurt is 3 years or so away. Not really going to bring inflation down now. Is it ?. All that is being created is panic in the money markets, panic with lenders, which then filters down to home owners & home buyers. I've been arranging mortgages for 30 years & I've never seen a major mortgage lender (HSBC) pull their rates twice in a week.
30 years ago John Major had this problem. He was called a 1 club golfer (being that he only had 1 club in his bag to do the job of reducing inflation- raise interest rates). He said "if it isn't hurting it isn't working". He lost the next election and the Tories were out of power for 13 years. Labour's big mistake was to then give the BOE independence.
I am not an economist & I believe there could be other ways of bringing inflation down. What they are though I have no clue. But this current ploy of simply raising interest rates every month without waiting to see the outcome is crazy.
It's something we are talking about at work more and more.
We basically sell a lot of products between £20 and £150 to consumers all over the world, and do about £200k a month through our direct to consumer channels. Our key customer is someone between 45 and 65, but particularly 55-65, so slightly more protected than the average due to probably paying most of their mortgage off/mortgage free.
They've crumbled since March (by around 25%), in both the US and UK and that is persisting.
When discussing yesterday at our board call, I pointed out that as well as tough macro economic conditions, we have the Fed and BoE against us, as this is literally what they're trying to do. Cut down people's spending.
An economist at JP Morgan who advised Jeremy Hunt has actually said the bank may need to trigger a recession...
"They have to create uncertainty and frailty, because it’s only when companies feel nervous about the future that they will think ‘Well, maybe I won’t put through that price rise’, or workers, when they’re a little bit less confident about their job, think ‘Oh, I won’t push my boss for that higher pay’"
Christ....
Interest rate rises are an incredibly blunt tool, and I really feel they don't have the desired impact, and nowhere near fast enough.
This surely should be done through the taxation system, the week it emerged that debt to GDP has topped 100%... Taxing people more won't impact confidence in the market as much either in my opinion, as right now I'm sitting here thinking "we are trying to create a recession" which impacts my confidence in the economy, rather than "the government is upping taxes to cool the economy, in a targeted manner."
To be clear on taxation, it would have to hurt almost everyone, this wouldn't be a "tax the rich" kind of call, it would have to impact almost everyone's ability to spend and would be regressive most likely too (in order to have desired effects). VAT for example, income tax/NI levels. I believe it can be a much more targeted approach than interest rate rises.
As it stands you can have two neighbours, one who is absolutely fucked and has to sell their house because they had a high LTV when it comes to remortgage, and another who is loving it because their mortgage is paid, and now they're richer than ever getting 5% on savings and spending it up. You can argue about whether some people have been responsible/irresponsible (a lot of it will just be down to age, someone buying their first home at a high LTV during COVID on a 2 year fix (me) is in big trouble for example) but that won't change the inflation figures. Changing income tax/CGT/corporation tax however would have that desired impact and much faster. I suppose that the issue with that is that you'd need other countries to join in otherwise you'll have some pretty big currency shocks when they start increasing their rates.
If we did this, and the Fed for example kept increasing interest rates instead, the pound would presumably lose a lot of value against the dollar which would be pretty catastrophic for an import economy, and lead to... Inflation!. Although I suppose you could use a combo of rates and tax, but much less on rates than we are currently seeing.
On top of that, supply side stimulus (despite injecting more cash into the economy) has to be something that is considered in an inflationary environment, surely?
Sorry I just realised how long I went on for there, but macro/micro economics fascinates me. It's not often I get the opportunity to spend ages at work talking macro economics either as it's almost entirely out of our control so people lose interest. That's a big mistake in a situation like this.
Does anyone have any experience of Advanced Subscription Agreements? Either from the position of an investor or a business?
Just wondering what the main pitfalls can be of them, I know that not correctly defining what a qualifying event is, as well as the longstop date are two major issues.
I’m not an economist either, but it seems to me the strategy of raising interest rates to bring down inflation will work best if the inflation is caused by demand outstripping supply causing prices to go up.
That doesn’t look like the route cause of this inflation, which is in a large part being caused by the cost of supply going up and then being passed onto customers. This then becomes a vicious cycle in that those customers are also workers in the economy and their wage demands getting higher pushes the cost of supply up further.
High energy prices, oil prices, a weak pound and limited supply of materials and components all have an effect on the cost of supplying the product to the end user. If these costs could be brought down then that might have an effect on reducing inflation. How that is achieved though is another matter.
My thoughts very similar to yours @huskaris. I posted similar but less articulately on the hoc site, and your targeted tax idea makes a lot of sense to me. Are we missing something or is it simply that the government (and governments in general) don't want to make themselves unpopular by raising taxes?
The Bank of England should have been more aggressive with base rate rises a number of months ago. 0.25% increases don’t shock but 0.5% or 0.75% do. I am not as confident in the current Governor as in previous incumbents.
I am one of the so called "lucky ones" in that my mortgage is paid off and I have savings in the bank. But now the tories have reduced the amount you can earn on interest tax free it means the government get more of the interest paid. I have a good pension that puts me into the 40% tax bracket so after using up ISA allowance and investing in PBs then 40% of any extra interest I "earn" goes straight to Jeremy Hunt...any advice on (legal) ways to invest that doesn't attract UK tax greatly appreciated!
@Rob7Lee@golfaddick. Good tips and yes I'd say I'm currently sitting on a 70% deposit right now. I think it's well within reach, rather than spending it on cars and holidays!
I’m not an economist either, but it seems to me the strategy of raising interest rates to bring down inflation will work best if the inflation is caused by demand outstripping supply causing prices to go up.
That doesn’t look like the route cause of this inflation, which is in a large part being caused by the cost of supply going up and then being passed onto customers. This then becomes a vicious cycle in that those customers are also workers in the economy and their wage demands getting higher pushes the cost of supply up further.
High energy prices, oil prices, a weak pound and limited supply of materials and components all have an effect on the cost of supplying the product to the end user. If these costs could be brought down then that might have an effect on reducing inflation. How that is achieved though is another matter.
Spot on. Interest rates are being used as a blunt tool for supply side issues. The economic management over the past few years has been catastophic. Not even of a GCSE Business Studies level!
I am one of the so called "lucky ones" in that my mortgage is paid off and I have savings in the bank. But now the tories have reduced the amount you can earn on interest tax free it means the government get more of the interest paid. I have a good pension that puts me into the 40% tax bracket so after using up ISA allowance and investing in PBs then 40% of any extra interest I "earn" goes straight to Jeremy Hunt...any advice on (legal) ways to invest that doesn't attract UK tax greatly appreciated!
Your mortgage is paid off, you have pension income that puts you in the 40% tax bracket, you have the income to max your ISA allowance each year, and invest in PBs.
I will be in a similar position come the end of this year when I retire (although my tax bracket is 45%!) and I am more than happy to pay tax on any taxable interest I earn, although I will use my wife's 20% and 40% tax brackets for savings of course.
Not sure you'll get too much sympathy for your situation!
I am one of the so called "lucky ones" in that my mortgage is paid off and I have savings in the bank. But now the tories have reduced the amount you can earn on interest tax free it means the government get more of the interest paid. I have a good pension that puts me into the 40% tax bracket so after using up ISA allowance and investing in PBs then 40% of any extra interest I "earn" goes straight to Jeremy Hunt...any advice on (legal) ways to invest that doesn't attract UK tax greatly appreciated!
Your mortgage is paid off, you have pension income that puts you in the 40% tax bracket, you have the income to max your ISA allowance each year, and invest in PBs.
I will be in a similar position come the end of this year when I retire (although my tax bracket is 45%!) and I am more than happy to pay tax on any taxable interest I earn, although I will use my wife's 20% and 40% tax brackets for savings of course.
Not sure you'll get too much sympathy for your situation!
Rather than offering sympathy, I'm happy to offer you both congratulations.
I am one of the so called "lucky ones" in that my mortgage is paid off and I have savings in the bank. But now the tories have reduced the amount you can earn on interest tax free it means the government get more of the interest paid. I have a good pension that puts me into the 40% tax bracket so after using up ISA allowance and investing in PBs then 40% of any extra interest I "earn" goes straight to Jeremy Hunt...any advice on (legal) ways to invest that doesn't attract UK tax greatly appreciated!
Your mortgage is paid off, you have pension income that puts you in the 40% tax bracket, you have the income to max your ISA allowance each year, and invest in PBs.
I will be in a similar position come the end of this year when I retire (although my tax bracket is 45%!) and I am more than happy to pay tax on any taxable interest I earn, although I will use my wife's 20% and 40% tax brackets for savings of course.
Not sure you'll get too much sympathy for your situation!
Rather than offering sympathy, I'm happy to offer you both congratulations.
Luck, right place, right time, a bit of hard work, and having the great good fortune to only marry once!!
I am one of the so called "lucky ones" in that my mortgage is paid off and I have savings in the bank. But now the tories have reduced the amount you can earn on interest tax free it means the government get more of the interest paid. I have a good pension that puts me into the 40% tax bracket so after using up ISA allowance and investing in PBs then 40% of any extra interest I "earn" goes straight to Jeremy Hunt...any advice on (legal) ways to invest that doesn't attract UK tax greatly appreciated!
The tax on interest is better than it was (£500 tax free if a higher rate tax payer), wasn't that long ago it was just income, so all taxable if you breached the tax free allowance on all your income.
Not sure what type of pension you have, but if you are drawing it and putting yourself in the 40% band only to then save some of it, why not just not draw it if you aren't spending it? Leave in the pension to grow tax free. But then I assume you must have a final salary/defined benefit pension?
It's just standard taxation, it is what it is as they say, many would love to be in your position of having to pay higher rate tax in their retirement!
You could invest in something that attracts capital gains rather than income tax if you aren't using up that allowance. Otherwise enjoy what you have and don't worry. Or as Bob says if you have a spouse make sure you are using up all allowances, I do that now with pension contributions to try and transfer as much to her as possible for retirement rather than me having it all.
I am one of the so called "lucky ones" in that my mortgage is paid off and I have savings in the bank. But now the tories have reduced the amount you can earn on interest tax free it means the government get more of the interest paid. I have a good pension that puts me into the 40% tax bracket so after using up ISA allowance and investing in PBs then 40% of any extra interest I "earn" goes straight to Jeremy Hunt...any advice on (legal) ways to invest that doesn't attract UK tax greatly appreciated!
Investment Bonds. You can take up to 5% pa without any immediate tax liability. If you have a spouse/partner who is a basic rate taxpayers even better. Also helpful latter as they can be put in Trust or assigned to someone else.
I am one of the so called "lucky ones" in that my mortgage is paid off and I have savings in the bank. But now the tories have reduced the amount you can earn on interest tax free it means the government get more of the interest paid. I have a good pension that puts me into the 40% tax bracket so after using up ISA allowance and investing in PBs then 40% of any extra interest I "earn" goes straight to Jeremy Hunt...any advice on (legal) ways to invest that doesn't attract UK tax greatly appreciated!
Your mortgage is paid off, you have pension income that puts you in the 40% tax bracket, you have the income to max your ISA allowance each year, and invest in PBs.
I will be in a similar position come the end of this year when I retire (although my tax bracket is 45%!) and I am more than happy to pay tax on any taxable interest I earn, although I will use my wife's 20% and 40% tax brackets for savings of course.
Not sure you'll get too much sympathy for your situation!
Rather than offering sympathy, I'm happy to offer you both congratulations.
Luck, right place, right time, a bit of hard work, and having the great good fortune to only marry once!!
I am one of the so called "lucky ones" in that my mortgage is paid off and I have savings in the bank. But now the tories have reduced the amount you can earn on interest tax free it means the government get more of the interest paid. I have a good pension that puts me into the 40% tax bracket so after using up ISA allowance and investing in PBs then 40% of any extra interest I "earn" goes straight to Jeremy Hunt...any advice on (legal) ways to invest that doesn't attract UK tax greatly appreciated!
Investment Bonds. You can take up to 5% pa without any immediate tax liability. If you have a spouse/partner who is a basic rate taxpayers even better. Also helpful latter as they can be put in Trust or assigned to someone else.
Also the 5% pa is cumulative/carry over if not used.
I am one of the so called "lucky ones" in that my mortgage is paid off and I have savings in the bank. But now the tories have reduced the amount you can earn on interest tax free it means the government get more of the interest paid. I have a good pension that puts me into the 40% tax bracket so after using up ISA allowance and investing in PBs then 40% of any extra interest I "earn" goes straight to Jeremy Hunt...any advice on (legal) ways to invest that doesn't attract UK tax greatly appreciated!
Your mortgage is paid off, you have pension income that puts you in the 40% tax bracket, you have the income to max your ISA allowance each year, and invest in PBs.
I will be in a similar position come the end of this year when I retire (although my tax bracket is 45%!) and I am more than happy to pay tax on any taxable interest I earn, although I will use my wife's 20% and 40% tax brackets for savings of course.
Not sure you'll get too much sympathy for your situation!
Rather than offering sympathy, I'm happy to offer you both congratulations.
Luck, right place, right time, a bit of hard work, and having the great good fortune to only marry once!!
But thanks anyway.
Many moons ago I was in a certain nightclub in Bromley and got chatting to a lady as you do. During that conversation she told me that she drove a top of the range Merc so I suggested that she must have done very well for herself. Her response was that she "had married very well and divorced even better". She then informed me her name, Sarah. As in Sarah Cascarino. Tony Cascarino has now been married three times. I think it's fair to say that they have probably cost him a few bob.
Don't be a Tony Cascarino. Be a Bob Munro. But if you have to be a Tony Cascarino make sure you marry someone even wealthier than you are. Or, just keep it in your trousers!
It's something we are talking about at work more and more.
We basically sell a lot of products between £20 and £150 to consumers all over the world, and do about £200k a month through our direct to consumer channels. Our key customer is someone between 45 and 65, but particularly 55-65, so slightly more protected than the average due to probably paying most of their mortgage off/mortgage free.
They've crumbled since March (by around 25%), in both the US and UK and that is persisting.
When discussing yesterday at our board call, I pointed out that as well as tough macro economic conditions, we have the Fed and BoE against us, as this is literally what they're trying to do. Cut down people's spending.
An economist at JP Morgan who advised Jeremy Hunt has actually said the bank may need to trigger a recession...
"They have to create uncertainty and frailty, because it’s only when companies feel nervous about the future that they will think ‘Well, maybe I won’t put through that price rise’, or workers, when they’re a little bit less confident about their job, think ‘Oh, I won’t push my boss for that higher pay’"
Christ....
Interest rate rises are an incredibly blunt tool, and I really feel they don't have the desired impact, and nowhere near fast enough.
This surely should be done through the taxation system, the week it emerged that debt to GDP has topped 100%... Taxing people more won't impact confidence in the market as much either in my opinion, as right now I'm sitting here thinking "we are trying to create a recession" which impacts my confidence in the economy, rather than "the government is upping taxes to cool the economy, in a targeted manner."
To be clear on taxation, it would have to hurt almost everyone, this wouldn't be a "tax the rich" kind of call, it would have to impact almost everyone's ability to spend and would be regressive most likely too (in order to have desired effects). VAT for example, income tax/NI levels. I believe it can be a much more targeted approach than interest rate rises.
As it stands you can have two neighbours, one who is absolutely fucked and has to sell their house because they had a high LTV when it comes to remortgage, and another who is loving it because their mortgage is paid, and now they're richer than ever getting 5% on savings and spending it up. You can argue about whether some people have been responsible/irresponsible (a lot of it will just be down to age, someone buying their first home at a high LTV during COVID on a 2 year fix (me) is in big trouble for example) but that won't change the inflation figures. Changing income tax/CGT/corporation tax however would have that desired impact and much faster. I suppose that the issue with that is that you'd need other countries to join in otherwise you'll have some pretty big currency shocks when they start increasing their rates.
If we did this, and the Fed for example kept increasing interest rates instead, the pound would presumably lose a lot of value against the dollar which would be pretty catastrophic for an import economy, and lead to... Inflation!. Although I suppose you could use a combo of rates and tax, but much less on rates than we are currently seeing.
On top of that, supply side stimulus (despite injecting more cash into the economy) has to be something that is considered in an inflationary environment, surely?
Sorry I just realised how long I went on for there, but macro/micro economics fascinates me. It's not often I get the opportunity to spend ages at work talking macro economics either as it's almost entirely out of our control so people lose interest. That's a big mistake in a situation like this.
Just on the particular highlighted point, whilst 100% agree with what you say, it is the reverse of the last 15+ years where the borrower has been able to borrow at ridiculously low rates, which in turn has negatively effected the saver who's money hasn't kept up.
The bigger problem I have is that whilst the borrowing rate broadly follows the BOE, that never seems to get fully passed onto savers and therefore the banks margin and profit increases.
I agree that VAT is a good tool right now rather than interest rates, you could also via NS&I issue a bumper savings product to attract saving rather than spending. Those two would have far greater effect far quicker than the interest rate rises by the BoE.
I hate to hark on, but I've been saying the storm has been coming for well over 9 months, mostly in the HoC but refuse to frequent that place anymore!
Where you can it's time to batten down the hatches, housing issues unless something drastic is done are going to be like we've never seen before in 12-18 months time, renters too will be massively effected.
It's something we are talking about at work more and more.
We basically sell a lot of products between £20 and £150 to consumers all over the world, and do about £200k a month through our direct to consumer channels. Our key customer is someone between 45 and 65, but particularly 55-65, so slightly more protected than the average due to probably paying most of their mortgage off/mortgage free.
They've crumbled since March (by around 25%), in both the US and UK and that is persisting.
When discussing yesterday at our board call, I pointed out that as well as tough macro economic conditions, we have the Fed and BoE against us, as this is literally what they're trying to do. Cut down people's spending.
An economist at JP Morgan who advised Jeremy Hunt has actually said the bank may need to trigger a recession...
"They have to create uncertainty and frailty, because it’s only when companies feel nervous about the future that they will think ‘Well, maybe I won’t put through that price rise’, or workers, when they’re a little bit less confident about their job, think ‘Oh, I won’t push my boss for that higher pay’"
Christ....
Interest rate rises are an incredibly blunt tool, and I really feel they don't have the desired impact, and nowhere near fast enough.
This surely should be done through the taxation system, the week it emerged that debt to GDP has topped 100%... Taxing people more won't impact confidence in the market as much either in my opinion, as right now I'm sitting here thinking "we are trying to create a recession" which impacts my confidence in the economy, rather than "the government is upping taxes to cool the economy, in a targeted manner."
To be clear on taxation, it would have to hurt almost everyone, this wouldn't be a "tax the rich" kind of call, it would have to impact almost everyone's ability to spend and would be regressive most likely too (in order to have desired effects). VAT for example, income tax/NI levels. I believe it can be a much more targeted approach than interest rate rises.
As it stands you can have two neighbours, one who is absolutely fucked and has to sell their house because they had a high LTV when it comes to remortgage, and another who is loving it because their mortgage is paid, and now they're richer than ever getting 5% on savings and spending it up. You can argue about whether some people have been responsible/irresponsible (a lot of it will just be down to age, someone buying their first home at a high LTV during COVID on a 2 year fix (me) is in big trouble for example) but that won't change the inflation figures. Changing income tax/CGT/corporation tax however would have that desired impact and much faster. I suppose that the issue with that is that you'd need other countries to join in otherwise you'll have some pretty big currency shocks when they start increasing their rates.
If we did this, and the Fed for example kept increasing interest rates instead, the pound would presumably lose a lot of value against the dollar which would be pretty catastrophic for an import economy, and lead to... Inflation!. Although I suppose you could use a combo of rates and tax, but much less on rates than we are currently seeing.
On top of that, supply side stimulus (despite injecting more cash into the economy) has to be something that is considered in an inflationary environment, surely?
Sorry I just realised how long I went on for there, but macro/micro economics fascinates me. It's not often I get the opportunity to spend ages at work talking macro economics either as it's almost entirely out of our control so people lose interest. That's a big mistake in a situation like this.
Just on the particular highlighted point, whilst 100% agree with what you say, it is the reverse of the last 15+ years where the borrower has been able to borrow at ridiculously low rates, which in turn has negatively effected the saver who's money hasn't kept up.
The bigger problem I have is that whilst the borrowing rate broadly follows the BOE, that never seems to get fully passed onto savers and therefore the banks margin and profit increases.
I agree that VAT is a good tool right now rather than interest rates, you could also via NS&I issue a bumper savings product to attract saving rather than spending. Those two would have far greater effect far quicker than the interest rate rises by the BoE.
I hate to hark on, but I've been saying the storm has been coming for well over 9 months, mostly in the HoC but refuse to frequent that place anymore!
Where you can it's time to batten down the hatches, housing issues unless something drastic is done are going to be like we've never seen before in 12-18 months time, renters too will be massively effected.
Agreed on the NS&I - and I think I made a similar point some time ago.
On the banks' margins - I believe this is where government intervention is required. For example, if a bank has a SVR of x% then they must have a readily accessible savings product (perhaps a 90 day notice) that pays x-y% where y = maybe 1 or 1.5 - not sure what a reasonable margin should be.
It's something we are talking about at work more and more.
We basically sell a lot of products between £20 and £150 to consumers all over the world, and do about £200k a month through our direct to consumer channels. Our key customer is someone between 45 and 65, but particularly 55-65, so slightly more protected than the average due to probably paying most of their mortgage off/mortgage free.
They've crumbled since March (by around 25%), in both the US and UK and that is persisting.
When discussing yesterday at our board call, I pointed out that as well as tough macro economic conditions, we have the Fed and BoE against us, as this is literally what they're trying to do. Cut down people's spending.
An economist at JP Morgan who advised Jeremy Hunt has actually said the bank may need to trigger a recession...
"They have to create uncertainty and frailty, because it’s only when companies feel nervous about the future that they will think ‘Well, maybe I won’t put through that price rise’, or workers, when they’re a little bit less confident about their job, think ‘Oh, I won’t push my boss for that higher pay’"
Christ....
Interest rate rises are an incredibly blunt tool, and I really feel they don't have the desired impact, and nowhere near fast enough.
This surely should be done through the taxation system, the week it emerged that debt to GDP has topped 100%... Taxing people more won't impact confidence in the market as much either in my opinion, as right now I'm sitting here thinking "we are trying to create a recession" which impacts my confidence in the economy, rather than "the government is upping taxes to cool the economy, in a targeted manner."
To be clear on taxation, it would have to hurt almost everyone, this wouldn't be a "tax the rich" kind of call, it would have to impact almost everyone's ability to spend and would be regressive most likely too (in order to have desired effects). VAT for example, income tax/NI levels. I believe it can be a much more targeted approach than interest rate rises.
As it stands you can have two neighbours, one who is absolutely fucked and has to sell their house because they had a high LTV when it comes to remortgage, and another who is loving it because their mortgage is paid, and now they're richer than ever getting 5% on savings and spending it up. You can argue about whether some people have been responsible/irresponsible (a lot of it will just be down to age, someone buying their first home at a high LTV during COVID on a 2 year fix (me) is in big trouble for example) but that won't change the inflation figures. Changing income tax/CGT/corporation tax however would have that desired impact and much faster. I suppose that the issue with that is that you'd need other countries to join in otherwise you'll have some pretty big currency shocks when they start increasing their rates.
If we did this, and the Fed for example kept increasing interest rates instead, the pound would presumably lose a lot of value against the dollar which would be pretty catastrophic for an import economy, and lead to... Inflation!. Although I suppose you could use a combo of rates and tax, but much less on rates than we are currently seeing.
On top of that, supply side stimulus (despite injecting more cash into the economy) has to be something that is considered in an inflationary environment, surely?
Sorry I just realised how long I went on for there, but macro/micro economics fascinates me. It's not often I get the opportunity to spend ages at work talking macro economics either as it's almost entirely out of our control so people lose interest. That's a big mistake in a situation like this.
Just on the particular highlighted point, whilst 100% agree with what you say, it is the reverse of the last 15+ years where the borrower has been able to borrow at ridiculously low rates, which in turn has negatively effected the saver who's money hasn't kept up.
The bigger problem I have is that whilst the borrowing rate broadly follows the BOE, that never seems to get fully passed onto savers and therefore the banks margin and profit increases.
I agree that VAT is a good tool right now rather than interest rates, you could also via NS&I issue a bumper savings product to attract saving rather than spending. Those two would have far greater effect far quicker than the interest rate rises by the BoE.
I hate to hark on, but I've been saying the storm has been coming for well over 9 months, mostly in the HoC but refuse to frequent that place anymore!
Where you can it's time to batten down the hatches, housing issues unless something drastic is done are going to be like we've never seen before in 12-18 months time, renters too will be massively effected.
Agreed on the NS&I - and I think I made a similar point some time ago.
On the banks' margins - I believe this is where government intervention is required. For example, if a bank has a SVR of x% then they must have a readily accessible savings product (perhaps a 90 day notice) that pays x-y% where y = maybe 1 or 1.5 - not sure what a reasonable margin should be.
Going back many years, but when I worked at the Woolwich we looked at a 0.75-1% margin, that was when rates were much higher than now.
Nationwide's SVR (or BMR as they call it) is 6.25%, the best 2 year mortgage they do is 5.74% Savings ranges from 2.5% for pure instant access to about 4.1% for a 1 year. Longer term members can get 4.75%.
So at the very best they are 1.5% higher on their BMR to their very best savings rate. The best market 90 day is around 4.85%.
Therein lies the issue (or at least one of).
Anyone with a mortgage and savings may do well to look at what Offset options are available when it comes to remortgage time.
Re the NS&I solution, I’d imagine that one like some 20 years ago which was for 5 years, interest linked to RPI year on year rises, would be wildly popular if it launched now.
But I have a question, how do institutions fund such a bond? I wonder what happens if inflation surges way beyond expectations at launch? Does it incur heavy losses for, in this case NS&I
Comments
It's like investing your hard-earned money on the 3:30 at Ripon!
97% of SP's that I've advised on have gone on to give a positive return.
2% have returned just the initial investment with no gain.
1% have returned a negative figure. This was a fairly niche one that invested in just 4 shares, and 1 share never recovered from a downgrade it received 2 years after the launch.
However, I am loathe to advise on them following the changes to the CGT allowance.
a £125k mortgage today is the same as a £225k mortgage 18 months ago.
you need the reverse perfect storm of prices AND interest rates dramatically reducing.
Sorry lad but that really isn't going to happen, unless you are sitting on a 75% deposit now.
Property prices might drop but I probably only by around 10%. Still too much demand & not enough supply.
Its good for people with no mortgage who have lots of savings and that has to be the minority of the population and savers are just that, savers, they don't spend. The people getting rumped do spend but are less able to now
Every time I think I understand money and finance something like this happens and I'm back to square 1 again
That's all there is to it. The idea (flawed in my mind) is that by raising the cost of borrowing (not just to home owners but business as well) then people have less to spend. If they spend less then prices wont go up so fast. Inflation is too much money chasing too few goods. By making people have less money in their pockets means they cant spend so much......so prices stop rising.
But as Blackadder once said. "There was one thing wrong with their plan. It was bollox".
The only way this current strategy will work is when mortgage payers start coming off their 5 year fixed rate of 0.99% and have to go onto a new rate of 5%. That is going to hurt. But the hurt is 3 years or so away. Not really going to bring inflation down now. Is it ?. All that is being created is panic in the money markets, panic with lenders, which then filters down to home owners & home buyers. I've been arranging mortgages for 30 years & I've never seen a major mortgage lender (HSBC) pull their rates twice in a week.
30 years ago John Major had this problem. He was called a 1 club golfer (being that he only had 1 club in his bag to do the job of reducing inflation- raise interest rates). He said "if it isn't hurting it isn't working". He lost the next election and the Tories were out of power for 13 years. Labour's big mistake was to then give the BOE independence.
I am not an economist & I believe there could be other ways of bringing inflation down. What they are though I have no clue. But this current ploy of simply raising interest rates every month without waiting to see the outcome is crazy.
We basically sell a lot of products between £20 and £150 to consumers all over the world, and do about £200k a month through our direct to consumer channels. Our key customer is someone between 45 and 65, but particularly 55-65, so slightly more protected than the average due to probably paying most of their mortgage off/mortgage free.
They've crumbled since March (by around 25%), in both the US and UK and that is persisting.
When discussing yesterday at our board call, I pointed out that as well as tough macro economic conditions, we have the Fed and BoE against us, as this is literally what they're trying to do. Cut down people's spending.
An economist at JP Morgan who advised Jeremy Hunt has actually said the bank may need to trigger a recession...
"They have to create uncertainty and frailty, because it’s only when companies feel nervous about the future that they will think ‘Well, maybe I won’t put through that price rise’, or workers, when they’re a little bit less confident about their job, think ‘Oh, I won’t push my boss for that higher pay’"
Christ....
Interest rate rises are an incredibly blunt tool, and I really feel they don't have the desired impact, and nowhere near fast enough.
This surely should be done through the taxation system, the week it emerged that debt to GDP has topped 100%... Taxing people more won't impact confidence in the market as much either in my opinion, as right now I'm sitting here thinking "we are trying to create a recession" which impacts my confidence in the economy, rather than "the government is upping taxes to cool the economy, in a targeted manner."
To be clear on taxation, it would have to hurt almost everyone, this wouldn't be a "tax the rich" kind of call, it would have to impact almost everyone's ability to spend and would be regressive most likely too (in order to have desired effects). VAT for example, income tax/NI levels. I believe it can be a much more targeted approach than interest rate rises.
As it stands you can have two neighbours, one who is absolutely fucked and has to sell their house because they had a high LTV when it comes to remortgage, and another who is loving it because their mortgage is paid, and now they're richer than ever getting 5% on savings and spending it up. You can argue about whether some people have been responsible/irresponsible (a lot of it will just be down to age, someone buying their first home at a high LTV during COVID on a 2 year fix (me) is in big trouble for example) but that won't change the inflation figures. Changing income tax/CGT/corporation tax however would have that desired impact and much faster. I suppose that the issue with that is that you'd need other countries to join in otherwise you'll have some pretty big currency shocks when they start increasing their rates.
If we did this, and the Fed for example kept increasing interest rates instead, the pound would presumably lose a lot of value against the dollar which would be pretty catastrophic for an import economy, and lead to... Inflation!. Although I suppose you could use a combo of rates and tax, but much less on rates than we are currently seeing.
On top of that, supply side stimulus (despite injecting more cash into the economy) has to be something that is considered in an inflationary environment, surely?
Sorry I just realised how long I went on for there, but macro/micro economics fascinates me. It's not often I get the opportunity to spend ages at work talking macro economics either as it's almost entirely out of our control so people lose interest. That's a big mistake in a situation like this.
Just wondering what the main pitfalls can be of them, I know that not correctly defining what a qualifying event is, as well as the longstop date are two major issues.
That doesn’t look like the route cause of this inflation, which is in a large part being caused by the cost of supply going up and then being passed onto customers. This then becomes a vicious cycle in that those customers are also workers in the economy and their wage demands getting higher pushes the cost of supply up further.
I will be in a similar position come the end of this year when I retire (although my tax bracket is 45%!) and I am more than happy to pay tax on any taxable interest I earn, although I will use my wife's 20% and 40% tax brackets for savings of course.
Not sure you'll get too much sympathy for your situation!
But thanks anyway.
Not sure what type of pension you have, but if you are drawing it and putting yourself in the 40% band only to then save some of it, why not just not draw it if you aren't spending it? Leave in the pension to grow tax free. But then I assume you must have a final salary/defined benefit pension?
It's just standard taxation, it is what it is as they say, many would love to be in your position of having to pay higher rate tax in their retirement!
You could invest in something that attracts capital gains rather than income tax if you aren't using up that allowance. Otherwise enjoy what you have and don't worry. Or as Bob says if you have a spouse make sure you are using up all allowances, I do that now with pension contributions to try and transfer as much to her as possible for retirement rather than me having it all.
I wanted to like and Lol that
Many moons ago I was in a certain nightclub in Bromley and got chatting to a lady as you do. During that conversation she told me that she drove a top of the range Merc so I suggested that she must have done very well for herself. Her response was that she "had married very well and divorced even better". She then informed me her name, Sarah. As in Sarah Cascarino. Tony Cascarino has now been married three times. I think it's fair to say that they have probably cost him a few bob.
Don't be a Tony Cascarino. Be a Bob Munro. But if you have to be a Tony Cascarino make sure you marry someone even wealthier than you are. Or, just keep it in your trousers!
The bigger problem I have is that whilst the borrowing rate broadly follows the BOE, that never seems to get fully passed onto savers and therefore the banks margin and profit increases.
I agree that VAT is a good tool right now rather than interest rates, you could also via NS&I issue a bumper savings product to attract saving rather than spending. Those two would have far greater effect far quicker than the interest rate rises by the BoE.
I hate to hark on, but I've been saying the storm has been coming for well over 9 months, mostly in the HoC but refuse to frequent that place anymore!
Where you can it's time to batten down the hatches, housing issues unless something drastic is done are going to be like we've never seen before in 12-18 months time, renters too will be massively effected.
On the banks' margins - I believe this is where government intervention is required. For example, if a bank has a SVR of x% then they must have a readily accessible savings product (perhaps a 90 day notice) that pays x-y% where y = maybe 1 or 1.5 - not sure what a reasonable margin should be.
Nationwide's SVR (or BMR as they call it) is 6.25%, the best 2 year mortgage they do is 5.74%
Savings ranges from 2.5% for pure instant access to about 4.1% for a 1 year. Longer term members can get 4.75%.
So at the very best they are 1.5% higher on their BMR to their very best savings rate. The best market 90 day is around 4.85%.
Therein lies the issue (or at least one of).
Anyone with a mortgage and savings may do well to look at what Offset options are available when it comes to remortgage time.
But I have a question, how do institutions fund such a bond? I wonder what happens if inflation surges way beyond expectations at launch? Does it incur heavy losses for, in this case NS&I