Give Yourself The Mother Of All Pay Rises

by Bruce Jackson on 16 January 2009  |  42 comments
Tweet

With the base rate at just 1.5%, thousands of mortgage holders are suddenly finding themselves flush with cash. The feel good factor will return.

I have seen the light. I've been searching for all of a day now but now I can see it. There is a light at the end of the economic tunnel.

Just yesterday I wrote about The Grim Reality Of 2009. Jobs were being slashed across the globe. World stock markets were on the slide. Just about everyone now, except perhaps George W Bush, admits this is going to be a long and deep recession.

Obviously nothing has changed between yesterday and today. In fact, in the last 24 hours, more people lost their jobs and the FTSE 100 lost yet another 60 points.

Hope You Can Believe In

For me, the thing that changed is hope. Perhaps not quite in the same way that Barack Obama brings hope to millions of Americans, but hope nevertheless. Hope breeds optimism. It brings back the feel good factor. The glass is half full rather than half empty.

Before I go on, let me say I'm the first to admit this whole global financial crisis has sent me into a spin. Some days I'm more optimistic than others. I'm finding those days are usually when my share portfolio rises. I know that is wrong, but when your portfolio has been hammered mercilessly over the past year, up days deserve some sort of mini-celebration, don't you think?

So why the optimism today?

Mother Of A Pay Rise

I found this post by `bingcrosby' on The Motley Fool's very popular Paulypilot's Pub discussion board very uplifting. As you can see, his fixed rate mortgage deal has just come to an end, and he is Foolishly in the process of checking out what other deals are available out there in mortgage-land.

To `bingcrosby's' surprise, despite the prevailing doom and gloom, he found there was a decent selection of deals in the marketplace. He also found his current mortgage provider's standard variable rate was just 3.49%.

In his words."I did the sums and nearly fell off the seat.Our disposable income is about to double. Bear in mind we are two professionals with 3 kids and a hefty mortgage.this is similar to getting the mother of all pay rises and bonus put together and then some."

It's Exactly Why The Base Rate Is At 1.5%

Now think about what this type of `pay rise' might mean for the economy if it is replicated over the tens of thousands of households with standard variable mortgages. Suddenly, there is a lot more cash sloshing about the economy. There are lots more people feeling optimistic than pessimistic.

Now before I get too excited, the whole point of slashing base interest rates to 1.5% is because we are in a recession. Just because people like `bingcrosby' have doubled their disposable income, it doesn't mean the recession is over.

Being a double income professional family, the `bingcrosbys' are more likely to be offered an attractive mortgage rate of 3.49% than an unemployed single mother living in an ex-Council estate. Sadly, people like that will continue on Struggle Street - life is sometimes not fair like that. But there is no doubt many people are set to benefit from the slashing of the base rate to the lowest level on record.

The Return Of The Feel Good Factor

It doesn't take too big a leap of faith to see how the economy might start recovering towards the back end of 2009 and early 2010. Tens of thousands of home owners will find themselves flush with cash as mortgage rates tumble. Initially, some will save most of the `windfall'. Some will pay off their mortgage that bit faster. Some will spend it.

As time goes on, and people feel a little more secure in their jobs, the spending will increase. It's natural. I do it. You do it. We all do it. It's called the feel-good factor.

Right now, for many people, the feel good factor is about as far away as peace in the Middle East. But unlike the latter, as time goes by, it will return. The economy doesn't turn around on a sixpence. It will take 9 to 12 months, at a minimum, perhaps even a little more, and then it won't necessarily be a sharp recovery. But beggars can't be choosers, and stating the obvious, a small recovery is better than continued recession

There is a light. `bingcrosby' is living proof the light does exist. We've just got to get through the next 12 - 24 months unscathed, or as unscathed as possible. Good luck.

P.S. Now might be a great time to check out just how low you can get your mortgage rate. Try the Motley Fool's no-fee mortgage service for starters. All you've got to lose is your existing high mortgage rate.

P.P.S. I fully realise all this extra money sloshing around the economy could mean today's era of deflation is relaced by tomorrow's period of inflation. But that's a story for another day, and another fight.

More: Naive 20-Year Olds Make The Best Investors | The Grim Reality Of 2009