Here at Cumbria Crack towers, we’re panicking slightly that next month’s mortgage payments might be a bit tight and Cumbria Cat might have to get a second job.
Why? The Bank of England has announced that interest rates have been raised for the sixth time in a row from 1.25 per cent to 1.75 per cent.
The 0.5 per cent rise makes it the largest increase for 27 years and a recession is predicted.
We don’t know about you, but our stomachs fell to the floor. We’ve read the national news reports and the expert analysis but what does it mean in real life? We thought we’d turn to one of our own experts for advice.
Graham Lamont, chief executive of Lamont Pridmore, is a calming influence, if not overly optimistic.
He believes we are likely to be in this situation for the next two years – and although a scary prospect, he explains that raising interest rates is a necessary thing to do as tough talk was needed to cut a never-ending rolling inflationary programme which would see pay rises to combat inflation, prices going up, interest rates going up and then pay rises – that some businesses could just not afford.
He says: “The trick is to hold the line as best as you can. If you increase interest rates then people don’t spend as much, stopping that rolling programme.”
Mortgages
Cumbria Crack asked Graham – for a friend, obviously – about mortgages. When their fixed mortgage came to an end, they may have never thought about finding another one as their rate was so good.
That’s come back to haunt them as it’s quietly creeped up over the last few months and they may be dreading the next letter from bank dropping through the front door following today’s announcement.
Graham, not overly reassuringly, says we should have looked at a new mortgage deal about two years ago. But, he adds, there will be a lot of people in the same boat – and people with buy-to-let mortgages are likely to be particularly hard hit as mortgage payments will probably eat into their profits.
A person with a mortgage worth £250,000 over 25 years at around one per cent would pay about £940 a month. After today’s rise, someone borrowing the same amount but at 1.75 per cent would pay £1,029 a month.
Graham says Cumbria Crack – or ahem, rather our friend – should take a deep breath and look at finances in detail.
He advises: “Go through your bank statement and see exactly what you’re spending on what. We do this with retirement clients and it’s amazing how much people don’t realise what they pay out for.
“Look at what you are spending it on, using both your bank statements and credit card statements and see where and what you can cut.”
He says it’s cutting a little bit here and there that can make the difference – so Cumbria Cat will not be getting as many Dreamies as he demands.
Lamont Pridmore has produced some suggestions – from batch-cooking meals to reducing transport costs – and has also suggested that employers feeling the pinch and not able to offer pay rises could explore how else they could help workers, like supermarket vouchers.
COVID-19 and the Ukraine War are the obvious suspects that have got us in this position, says Graham, plus the supply chain shutting down from China.
He adds: “People on a fixed salary are in survival mode now; there’s no other way to say it. If people are really struggling, they should look at the credit card – transfer your balance to a 0% card. No one should be paying 22 per cent interest.
“If you have a bank loan, see if you can get it cheaper elsewhere – although do watch out for penalty clauses, especially on higher purchase agreements – and take another look at your mortgage; you might be able to extend it for another couple of years and end up paying what you are now, but just for a little bit longer.”
