Is a policy like this theoretically feasible, what are your thoughts and what major economic issues am I overlooking?
The policy is theoretically feasible in the sense that parliament could theoretically pass it and make it a law on the books. However, from economics perspective it doesn’t make much sense.
The premise of your question is false;
Because of this, when BOE raise interest rates, the effect on consumer spending is concentrated mainly on households with variable-rate mortgages or those who are remortgading soon. Renters are also largely unaffected. This seems to make monetary policy less broad-based and potentially more uneven in its impact.
The effect that monetary policy has on mortgages of people is merely one of the many channels monetary policy operates through (here is an explainer offered by ECB this broad explanation is also valid for UK). Consequently, even if nobody in an economy would have a mortgage to begin with monetary policy would still have effects on the economy. So the premise that fixed interest rate mortgages are somehow serious monetary policy issue is simply incorrect.
Next, because money is fungible mandatory savings rate would only be biding for some people. Most people already save extra money for retirement every month or put money on savings account etc. There are very few households whose marginal propensity to consume is literally between 98-100%. Anyone else would just reduce their original saving through different means and save exactly the same amount as before just in a different way to comply with the policy.
The households that would be affected are precisely the household that are poor and face severe budget constraints. However, those are the people you want to exclude. So you are just creating distortions in terms of forcing people to save in ways you fancy they should save instead of them saving in ways they find optimal given their personal circumstances.
Moreover, your claims about the advantages of the policy are also mostly not true. You claim;
It reduces demand without discouraging business borrowing.
But this is wrong. Aggregate demand includes business borrowing and investment. In fact even the examples you use as saving are examples that in normal circumstances contribute to aggregate demand. For example, if you put your savings into retirement account that invest your savings in the economy you are contributing to aggregate demand. Investment is part of aggregate spending in macroeconomics and investment is equal to savings. As long as that money circulates in the economy someone’s else’s spending is someone’s else’s income. Economists may worry about savings during severe recessions, because during that time when people save, banks are not willing to invest that money (due to high uncertainty), and then you get classical Keynesian “paradox of thrift” (see Blanchard et al Macroeconomics 3rd Ed ch 3-7).
This paradox of thrift occurs precisely because from macro perspective Income = consumption spending + investment spending + government spending + spending on net exports, and when banks or other financial intermediaries are not willing to invest your savings then that investment spending doesn’t become’s someone else’s income and output is lower.
However, this paradox of thrift doesn’t occur outside deep recessions with liquidity traps. Central banks do not typically raise interest rates in recessions, but during expansions when investment spending and hence savings increases aggregate spending and income and hence aggregate demand. So this policy proposal makes no sense. You basically want to decrease aggregate consumption spending in a way that it gets by force offset by increase in aggregate investment spending. That doesn’t change aggregate demand at all you are just rearranging components of aggregate demand.
The “cost” of monetary tightening goes to households rather than banks.
I am not sure what you mean by this. The costs of monetary tightening is ultimately borne by households more broadly anyways as it reduces their intertemporal budget (unless they are net creditors).
It affects a wider share of the population instead of only those with certain mortgage structures.
This claim is prima facie absurd. It affects consumption of people whose marginal propensity to consume is between 98-100% minus poor households you want to exclude. Average marginal propensity to consume in most estimates typically doesn’t exceed ~80% (and those are still upper bounds of estimates). Of course not everyone is average, but we know that marginal propensity to consume is higher for poor people (again see Blanchard et al), but you want to exclude those. On other hand mortgages are merely one small part of all possible monetary channels as was already explained at the beginning. Consequently, it’s absurd to claim this would somehow affect more households even without gathering precise statistics. This would require most households across wide income categories to have marginal propensity to consume above 98%, you usually don’t find such high marginal propensity to consume even for people who have incomes significantly below average, you only find it amongst the most deprived people which you exclude form the policy to begin with.
