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; request a free guide on NISAs from Hargreaves Lansdown

Actor Burt Reynolds last year
peopleBurt Reynolds, once among the most bankable actors in Hollywood, is set to auction his memorabilia
Gordon and Tana Ramsay arrive at the High Court, London
newsTV chef gives evidence against his father-in-law in court case

Watch the spoof Thanksgiving segment filmed for Live!
The data shows that the number of “unlawfully” large infant classes has doubled in the last 12 months alone
i100Mike Stuchbery, a teacher in Great Yarmouth, said he received abuse
Arts and Entertainment
The starship in Star Wars: The Force Awakens
filmsThe first glimpse of JJ Abrams' new film has been released online
Arts and Entertainment
The cover of The Guest Cat – expect to see it everywhere
books'It's a simple, sweet and charming tale; it’s very heartfelt'
i100 Charity collates series of videos that show acts of kindness to animals
Arts and Entertainment
One of the installations in the Reiner Ruthenbeck exhibition at the Serpentine Gallery
artCritics defend Reiner Ruthenbeck's 'Overturned Furniture'
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Austen Lloyd: Company Secretary

    Excellent Package: Austen Lloyd: EAST ANGLIA - SENIOR SOLICITOR LEVEL ROLE** -...

    Citifocus Ltd: German Speaking Client Specialist

    £Attractive Package: Citifocus Ltd: Prestigious asset management house seeks a...

    Citifocus Ltd: Performance & Risk Oversight

    £Negotiable: Citifocus Ltd: This is a varied role focusing on the firm's mutua...

    h2 Recruit Ltd: Sales Director - SaaS (SME/Channel) - £140,000 OTE

    £90000 - £140000 per annum + benefits: h2 Recruit Ltd: Are you a high achievin...

    Day In a Page

    Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

    Christmas Appeal

    Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
    Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

    Is it always right to try to prolong life?

    Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

    What does it take for women to get to the top?

    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
    Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

    Knitting pretty: British Christmas Jumpers

    Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
    French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

    French chefs campaign against bullying

    A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
    Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

    Just what you need on a New Year hangover...

    Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
    Cuba set to stage its first US musical in 50 years

    Cuba to stage first US musical in 50 years

    Claire Allfree finds out if the new production of Rent will hit the right note in Havana
    Christmas 2014: 10 best educational toys

    Learn and play: 10 best educational toys

    Of course you want them to have fun, but even better if they can learn at the same time
    Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

    Paul Scholes column

    I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
    Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

    Lewis Moody: Lancaster has made all the right calls – now England must deliver

    So what must the red-rose do differently? They have to take the points on offer 
    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
    Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

    Sol Campbell cries foul at Labour's mansion tax

    The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
    Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

    Sarkozy returns

    The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
    Is the criticism of Ed Miliband a coded form of anti-Semitism?

    Is the criticism of Miliband anti-Semitic?

    Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
    Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

    Ouija boards are the must-have festive gift

    Simon Usborne explores the appeal - and mysteries - of a century-old parlour game