This week, one of our readers sent in a comment about monetary policy.
Michael White said: “The ability of monetary policy to curb inflation is absolutely dependent on whether we can accurately identify the true source of the inflation. The huge increases in the price of energy have created the problem and caused unprecedented inflationary pressure across a spectrum of products, not just gas and electricity.
“There is very little genius in continuing to ratchet up interest rates as the sole combatant in the war against inflation, in the present environment. Instead, I suggest there is a solution but, unfortunately, not one Andrew Bailey and his cohorts are prepared to consider.”
He continued: “My proposal is we need price stabilisation measures instead of adhering to the dictum: ‘There is no alternative to combating inflation other than with rate increases’. Rate rises alone put us on a one-way course to recession and the pain that brings.
“Businesses are already going into insolvency at a record rate and repossessions are already growing. It can only get so much worse if the Bank of England is unable to recognise there is an alternative solution which the US and EU are now beginning to accept.”
White added: “I can only hope that common sense prevails when the ‘bombs go off’ on the end of very low fixed interest rates for thousands of borrowers and trust the lenders switch them to interest-only as a ‘holiday’ for a year or two and avert another crisis.”
‘Onus’ is on advisers to explain rate rise impact on payments
This week’s second comment is in response to: Borrowers should prepare for more base rate hikes – industry reaction
Andy Wilson said: “The speed and level of mortgage rate increases has taken most by surprise, but the onus has always been on advisers to explain the potential impact on payments if rates rise. the lenders have, for some years, applied ‘stress tests’ to payments at the point of sale, but we should also have been counselling our clients on how bad things might get.
“Anyone who has bought their first home in the last 13 years, post-credit crunch, will not have experienced horrible mortgage rates and deals. They have had a false sense of security. Although KFIs and ESIS documents point out the repayments if rates rise, advisers should have been pointing out what could happen when the wheels of life fell off – economic strife, Brexit, changes of government, changes of mortgage policy, house price falls and so on. We have not served our clients well if we didn’t scare them at least a little bit.
“We can be fairly sure the government won’t be stepping in to help borrowers. That would undermine the reason for the Bank of England raising base rates – to control inflation. Making things easier for mortgage holders will only slow any recovery down and keep inflation high (that’s the theory, anyway). So, mortgage holders are on their own for the time being. We now need to be helping them with our crystal balls as to what will happen over the next three to five years too. Good luck with that everyone.”
The comments here are from our readers and do not necessarily reflect the views of Mortgage Solutions and Specialist Lending Solutions.