The real world decides what you pay, not new Bank of England Governor Mark Carney

Millions of households face miserable prospect of having to work simply to repay their debts

Personal Finance editor

I have been warning of the potential effects of rate rises on our finances for a long time. But the background noise surrounding this has been rising of late with the new Bank of England Governor Mark Carney first suggesting an early increase in the base rate and then backtracking.

Regardless of what the Bank and its expensively imported Governor say, the reality with interest rates is that the market will ultimately decide.

Ever since the global financial crisis, there has been such a massive disconnect between the base rate and the real world – what you and I pay on our mortgages, credit cards and loans and earn on our savings – that it almost doesn’t really matter what goes on at Threadneedle Street, apart from quantitative easing, of course.

What really matters is a combination of the cost to lenders of raising funds as well as the state of their balance books.

It is why, for instance, HSBC has been far and away the best mortgage lender to go to since 2008 because its balance sheets are so healthy that it can offer superb rates.

On the flip side, though, you have to be the crème de la crème of customers with a great credit history and lots of your own money to put down.

However, it is the market rather than the bank rate that will decide the cost of lending in the real world.

Barclaycard, the country’s pre-eminent credit card firm, has been writing to customers telling them they will no longer link rates to the base rate.

More than likely this is preparing the ground for an increase in rates in the future.

At present, Barclaycard customers who are on these tracker rates can pay as little as 10.5 per cent, which compares very favourably with the rates on offer to new borrowers of about 19 per cent.

Barclaycard’s move and realpolitik view of the post-credit crunch world means that I can see a rate rise sooner rather than later coming from the bottom up so to speak, from the providers rather than the Bank of England. 

As for the consequences of rate rises, these were laid out last week by the Resolution Foundation, which predicted 700,000 households would be paying more than 50 per cent of their annual income in debt repayments by 2017.

And that is taking into account what the Foundation called a “best case scenario” on rates – sharper increases could leave millions of households working simply  to repay their debts, a miserable state of being for anyone and probably psychologically, if not financially, unsustainable over the very long term.

Yet again we have been warned.

Payday popularity?

I got a touch excited by a press  release that dropped into my inbox last week from R3, the insolvency practitioners’ body.

In short, it stated that payday loans were becoming less popular. You could have kidded me, with the seemingly never-ending TV and radio advertisements for these firms and the way that they queue up to sponsor anything that will get them more exposure among their target audience – the young and what used to be called the working class.

However, reading further on I saw that R3 had managed to rustle up only 94 adults who had a payday loan out of bigger sample covering 2,500 adults conducted by Com Res.

Many moons ago when I used to work at the BBC I had a rule never to report a survey if there were fewer than 1,000 respondents, unless it was a very particular narrow group – say FTSE 100 company directors, for instance.

I do hope, though, that R3 is right and its snapshot is correct – that payday loans are declining in popularity.

But this could, sadly, have more to do with borrowers being too burdened by existing payday loans to take out a new one.

A far bigger survey from debt charity Stepchange, though, based on tens of thousands of people they see, indicates that R3’s interesting hypothesis that payday is getting less popular is probably wrong.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Arts and Entertainment
Supporting role: at the Supreme Court, Rhodes was accompanied by a famous friend, the actor Benedict Cumberbatch
booksPianist James Rhodes on the extraordinary legal battle to stop the injunction of his memoirs
Arts and Entertainment
Jesuthasan Antonythasan as Dheepan
filmDheepan, film review
Sport
Steven Gerrard scores for Liverpool
sport
News
peopleComedian star of Ed Sullivan Show was mother to Ben Stiller
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Software Developer / C# Developer

    £40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

    Neil Pavier: Management Accountant

    £45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

    Sheridan Maine: Commercial Accountant

    £45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

    Laura Norton: Project Accountant

    £50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

    Day In a Page

    Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

    Sun, sex and an anthropological study

    One academic’s summer of hell in Magaluf
    From Shakespeare to Rising Damp... to Vicious

    Frances de la Tour's 50-year triumph

    'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
    'That Whitsun, I was late getting away...'

    Ian McMillan on the Whitsun Weddings

    This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
    Kathryn Williams explores the works and influences of Sylvia Plath in a new light

    Songs from the bell jar

    Kathryn Williams explores the works and influences of Sylvia Plath
    How one man's day in high heels showed him that Cannes must change its 'no flats' policy

    One man's day in high heels

    ...showed him that Cannes must change its 'flats' policy
    Is a quiet crusade to reform executive pay bearing fruit?

    Is a quiet crusade to reform executive pay bearing fruit?

    Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
    The King David Hotel gives precious work to Palestinians - unless peace talks are on

    King David Hotel: Palestinians not included

    The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
    More people moving from Australia to New Zealand than in the other direction for first time in 24 years

    End of the Aussie brain drain

    More people moving from Australia to New Zealand than in the other direction for first time in 24 years
    Meditation is touted as a cure for mental instability but can it actually be bad for you?

    Can meditation be bad for you?

    Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
    Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

    Australia's first-ever Eurovision entrant

    Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
    Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

    Laughter, but no tears, as Letterman takes his bow after 33 years

    Veteran talkshow host steps down to plaudits from four presidents
    Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

    Hozier's 'blasphemous' song takes Novello award

    Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
    Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

    Join the tequila gold rush

    The spirit has gone from a cheap shot to a multi-billion pound product
    12 best statement wallpapers

    12 best statement wallpapers

    Make an impact and transform a room with a conversation-starting pattern
    Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

    Paul Scholes column

    Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?