Pill: Expect Remortgaging At Higher Rates To Affect Consumption

Q: Will more homeowners remortgaging on to higher rates materially impact consumption?

• A: One of the intentions of monetary policy is to reduce consumption. A lot less people on variable rates now than in the late 1980s - there are more fixed rates with 2-5 years now.
• So the cohort of mortgage holders who face a significant jump from very low rates falls on a smaller group of people - 4m or so in the next year - a more concentrated squeeze on that cohort than over the entire mortgage holding community.
• Don't draw a distinction in most macro models when looking at aggregate consumption. Do have better models to explore this since the financial crisis, but FPC notes household balance sheets will not be put into distress on the back of these things. Don't think there is a big discontinuity here.
• Do expect an effect on consumption over next few months as more people remortgage but not necessarily a non-linear response.