Thursday, Jan 11, 2007
The Guardian shocked by IR rise
Guardian: Inflation the key to Bank's surprise move
If the Bank of England took 'everyone by surprise' as this article in the Guardian claims, I would be interested to know why for the past two weeks I've been posting articles on this blog saying that the markets have already factored in a quarter point rise.
Posted by jellycaster @ 06:11 PM (152 views) Add Comment
16 Comments
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1. Cstanhope707 said...
Come on Children this is a tiny weeny little percentage point rise, were any of these clowns around when IR's were considered low at 10%. The sky is falling these are problably the same clowns that spend their days having panic attacks over the Global Warming Hype.
2. Nasha said...
I think that, a lot like Global Warming, its all a bit too late to stop the cogs in motion
3. paul said...
Yes. It's nothing but can't you hear the pips squeaking?
What does that tell us?
4. Grumpiest Old Man said...
Jellycaster with all due respect do you think the Gaurdian would be considering your position. 47 out of 60 institutions forcast no change !!!!
5. Clare said...
Don't forget that its not just mortgage rates that are affected , but also loan rates too. How many people have both unsecured loans and mortgages.
On the news last night it claimed that the last 3 rises could cause a £50.00 increase on mortgages (£100K variable) and a £70.00 rise on loans per month (£10K loan) , thats possibly over £2650.00 per year for a household with a £200K mortgage and £10K loan.
Won't make any difference eh !!
6. george monsoon said...
I can hear the sound of fixed rate mortgages coming to an end and people struggling to find the extra 2 or 3 % they thought would never happen.
Watch the figures on reposession this year. i bet they skyrocket
7. talking rot said...
I agree with George M.
The question I have is which sector or sectors of the market will be affected. Will it be those who stretched themselves to buy a flat or maisonette? Will it be 2-bed homes or 3-bed homes? Will it be the more expensive end of the market? Or will it be a broad selection across the entire market?
I suspect the most stretched people are those at the lower end of the market so the next question is, can the entire market be brought down because the lower end of the market suffers a crash.
I wonder where most of our BTL landlords have their investments? The upper end of the lower end?
8. sold 2 rent 1 said...
The people most stretched will be those on interest only mortgages as these will rise proportionally more than a repayment mortgage.
These tend to be FTB and BTL one and two bed flats
9. monty said...
I don't think the pips are going to squeek for some time. Think about it. 70% of mortgages are fixed rate and are infinitely more popular than they were in 1990. So even FTBers who "stretched themselves over the last year" are going to cruise through until 2008, at the very least. What it will affect is affordability, both of trading up and FTB. That, in itself, will have a dampening effect on the market but don't expect any panic selling, rather a decrease in volumes (and even prices perhaps) as folk put the brakes on trading up until a clearer picture develops.
I think the BoE will follow the Fed in doing a series of month on month 0.25% increases rather than the 1% jumps every quarter like the last time.
10. inbreda said...
Monty - the trouble with fixed rates is that they lull their owners into a false sense of security. Payments are the same every month .... until the fixed rate ends.
Interest rates are 50% higher than they were 3.5 years ago.
That means someone who pays £600 on an IO mortgage will have to find an extra £300 per month when the fixed rate ends.
Obviously waiting for fixed rates to end is hardly going to shock the entire market - but repos throughout the year I'm sure will rise dramatically.
11. monty said...
Agreed Inbreda, a 50% increase in monthly repayments is a real shock to anyone's system but that's a worst case scenario. Today, someone who fixed 2 years ago will only have a 11% rate increase, 3 years ago a 40% shocker and 4 and 5 years 31%. I don't see that breaking the bank just yet. If rates do not increase again (unlikely, I know) for that 50% daisy cutter you'll need to wait until July for those who fixed for 4 years and July 08 for those who fixed for 5.
12. Davros said...
I think everyone is reading too much into repossesions as being the driver of falls.
The big drivers behind the boom were money being readily available and the knowledge that however much you paid, come 12 months time your property would be worth more than you paid for it. This is true whether you were a first time buyer or investor. Is it any wonder therefore that we have an imbalance in supply and demand?
Now interest rates are rising, affordability is tighter, buy to let is even less viable as an investment and we're seeing year on year rises falling since their peak in 2002.
Even if we get the price rises predicted by the mortgage lenders of 5%, property will be a loss making investment and peoples deposits will no longer be playing catch-up with house prices. Come a fall.. well where's the demand going to come from? It's certainly won't be from investors or first time buyers priced out of the market. No demand, falling prices. Falling prices, no demand.....
13. monty said...
Just done some back of fag packet (well, Excel) tipping point type projection. If rates increase month on month by 0.25% for the rest of the year, the worst affected are those 4 year fixed IO mortgages, with 3 and 5 years close behind.
The percentage increases look like this for 1 through 6 year fixed IO mortgages.
31-Jan-07 5.25 16.67 10.53 40.00 31.25 31.25 -12.50
28-Feb-07 5.5 22.22 15.79 37.50 46.67 37.50 -4.35
31-Mar-07 5.75 27.78 21.05 43.75 53.33 43.75 0.00
30-Apr-07 6 33.33 26.32 50.00 60.00 50.00 9.09
31-May-07 6.25 38.89 31.58 47.06 66.67 56.25 19.05
30-Jun-07 6.5 44.44 36.84 44.44 73.33 62.50 23.81
31-Jul-07 6.75 50.00 42.11 50.00 92.86 68.75 28.57
31-Aug-07 7 47.37 55.56 47.37 100.00 75.00 40.00
30-Sep-07 7.25 52.63 61.11 52.63 107.14 81.25 52.63
31-Oct-07 7.5 57.89 66.67 57.89 114.29 87.50 66.67
30-Nov-07 7.75 55.00 72.22 63.16 106.67 93.75 93.75
31-Dec-07 8 60.00 77.78 68.42 113.33 100.00 100.00
14. rich said...
> Cstanhope707 said...
> Come on Children this is a tiny weeny little percentage point rise, were any of these clowns
> around when IR's were considered low at 10%. The sky is falling these are problably the same
> clowns that spend their days having panic attacks over the Global Warming Hype.
No, these clowns are "economists", and the other clowns are "climate scientists". What are you again?
15. Cstanhope707 said...
Rich I am not a climate scientist and I did not mean any offense with my note, I was actually trying to refer to the general media "over reaction" to what after all is a very small increase which they will probably introduce a 0.25% rate cut to compensate for in a couple of months. They are the clowns I was refering to. And I was comparing this to the hype over climate change. By clowns I am generally refering to the BEEB presentors and the commentators in the DE who rehash the same story. The 15% HPI story for next year was a classic example.
The real problem I think is going to be when they start introducing 60 year IO mortgages to compensate no matter how high IR's go, hopefully there will not be too many idiots to take these on.
16. rich said...
Apologies for my somewhat confrontational response then. The opening "come on children" in your post made me interpret your later comment as a Bush-style denial.
I'm not going to claim the Atmospheric Physics course I did as part of my degree makes me an expert, but actually doing calculations of how weather is effected by temperature (amongst other things, air's ability to carry water depends on temperature) made me understand that small changes can have a significant effect... even without adding the complexities of melting ice caps, ocean currents, changing air composition, etc.
I agree with you about bad reporting though.