The Bank of England said inflation is expected to fall next year and should be close to 2% in about two years. The cost of living crisis has put many people in situations they have never faced before, but experts believe it could be years before inflation picks up.
Homeowners who are still paying off their mortgages have found themselves trapped between runaway inflation, decade-long high interest rates and an ever-worsening cost of living crisis.
David Woodward, MD of Woodward Financialexplained that the Bank of England raises interest rates to control inflation by reducing disposable income.
This in turn drives prices down over time, as Mr Woodward said: ‘We haven’t seen a brutal shock, but that’s exactly what we need.’
The fight may be far from over as the expert believes many homeowners will be significantly impacted in the coming years, particularly if they have variable rate, base rate tracking or a rate capped mortgage.
Mr. Woodward shared some ideas, understanding that many households are stuck trying to decipher when to set their rates and how much interest rates will rise.
He said: “Inflation will not come down until a balance is reached, in some European countries inflation has topped 11% with the UK likely to top 10% soon.
“Prices are likely to continue to rise with inflation and won’t start falling until people stop paying the ever-rising prices. It won’t stop until excess household income and credit card limits are exhausted. At this point prices will stagnate and then start to fall and continue to fall until the consumer starts spending again, unfortunately in the current climate this could take several months or even years.
READ MORE: Lloyds and Halifax to close 28 high street branches – full list released
“We will start to see people choosing to put off any big buying decisions, like extensions, kitchens or a new car. In times of recession unemployment rises and people worry about their job stability, they are certainly not looking to increase their mortgages or take on more debt.
“If you’re nearing retirement or still paying mortgages and debts, the uncertainty of what might happen in the years to come can give you sleepless nights. While unpleasant, there will be an upside ending of inflation.
“For those who may be having difficulty, the information below will hopefully provide reassurance that regulations are in place to protect the borrower.”
The Mortgage Conduct of Business Regulations state that borrowers who are in arrears or mortgage deficits must be treated fairly, and the lender is responsible for dealing with customers and taking certain actions.
DO NOT MISS :
- Seeking an agreement – The lender must make reasonable efforts to reach an agreement with the borrower to repay the arrears
- Liaison – The lender must liaise with a third party to advise on arrears
- Allow time – The lender should have a reasonable approach to the time frame in which the arrears should be repaid, this should also take into account the circumstances of the borrower
- Allow Changes – The borrower should be allowed to change the mortgage payment date or repayment method, unless the lender has a good reason not to.
- Consider options – If no reasonable payment arrangement can be made, the lender should consider allowing the borrower to stay in the property until it is sold.
- Last Resort – The lender should only take possession of the property as a last resort if all other reasonable attempts to settle the debt have failed.
Mr Woodward suggested that regardless of the type of debt, Britons should contact their lender to try to find a solution, continuing: “Whether it is secured or unsecured debt, a mortgage , a loan or a credit card, talk to the lender to come to an agreement.
Sticking your head in the sand won’t solve the problem, talk to the lender and don’t wait for them to contact you, the sooner you fix the problem the sooner the worries will go away.
“It’s not for me to say how you should cut your fabric to ride out this period of inflation, but a good start is ‘What do you need to get by’, not ‘What do you want’. “
During the pandemic, the Bank of England’s base rate remained at a record high of 0.01%.
While this was disastrous for savers, it allowed people in debt to catch their breath and save their pennies during a global crisis.
However, that leeway is now long gone and many are unsure how to move forward as the base rate has hit a decade high of 1% and the cost of living continues to rise.
Interest rates have a direct effect on people in debt, whether through mortgages, credit cards or loans, which means more people are struggling to pay their bills.
Undeniably, this has a big impact on those with mortgages trying to pay off their homes, but it could also indirectly hurt those looking to get on the property ladder.
Mr Woodward explained: “Low interest rates tend to cause house prices to rise and high interest rates tend to cause house prices to fall, it is not always the case, during the financial crash of 2008, we saw a drop in property prices even when interest rates were low. ”
He added: “The impact of rising interest rates will only worsen for the foreseeable future.
“The Bank of England’s Monetary Policy Committee sets and announces UK interest rate decisions eight times a year and they have a particularly tough job to do.
“The furlough seeds sown by the Chancellor in the early months of the pandemic have not helped and we must all reap what he sowed.”
The recovery from the pandemic was expected to prove financially difficult, but an unexpected crisis compounded these problems.
The invasion of Ukraine and subsequent sanctions against Russian oligarchs have affected industries and economies around the world, including oil and gas which was already unaffordable for many.
All combined, this perfect storm of a global financial situation has seen inflation hit seven percent and is expected to hit double digits.
As a result, the British public currently has less disposable income, the amount left over after paying bills and necessities, than during the 2008 financial crisis.