Friday, May 11, 2007
Experts predict rates will peak at no more than 6%??
FT.com: Rates may not yet have hit peak, say economists
Nice quote from the chap at Chase De Vere Mortgage Management who reckons “Rates may be up, but it may make sense to take a variable rate loan now" and "If you can get a variable rate for around 4.9 per cent, it would take at least two further rate rises before this would become more expensive than a two or five-year fix". All well and good but this means that house prices will not generally fall because while people can still get excessively leveraged mortgages from providers.
Posted by enuii @ 08:48 PM (319 views) Add Comment
8 Comments
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1. Orwell said...
I like Will Hutton even though he is a bit of a Blur Babe. I like his words though:
In Britain the economic story is not industrial growth, public spending growth or even the growth of the knowledge economy (which is performing well). The alpha and omega of the British economy is our buoyant housing market and the way it drives lending growth, consumption and the structure of economic activity - and above all, inflation. House prices are too high - just as they were in 1988. By 1990 (before we entered the ERM) the government had to force the mortgage rate up to 15%
And.....
All this is forgotten by the Eurosceptics and by most economic commentary. It was not the ERM that caused the housing crash of the early 1990s, but the consequence of only being able to cool the housing market down with very high real interest rates in 1989 and 1990. In my view not only has nothing changed in 2007; it has got much worse. The Bank is trying to engineer a slow-down in house prices without a crash, but on past performance it began the rate increases too late and too inadequately.... A real setback in house prices is possible if not yet probable.
And so that's ok we have very intelligent BOE denizens:
It runs an economy that is over-dependent on house prices to generate growth and employment. Blair and Brown have tried to build Britain's knowledge economy, but they have done little to tackle the vortex of planning restrictions, buy-to-let mania, lending recklessness and poverty of social housing that have driven the housing boom. We have to hope the Bank is run by supermen. Otherwise a reckoning lies ahead.
Touche... When?
2. robh said...
'interest rate rises are intended to put the brakes on the runaway house price growth seen over the past year'
I thought that the MPC' aim was to maintain the CPI at 2% +/- 1%. I don't recall that they were meant to be worried about house prices?
By the way. Did I corrected 'breaks' to 'brakes'... I wonder if the FT really meant breaks :)
3. Rimmer said...
Didnt i read not that long ago that rates will peak at 5.5% in the summer of 2007.
Funny how things change!
4. George said...
experts - spastics
5. Timbuk3 said...
Last year 'experts' said that interest rates would not go over 5% in 2007, and were actually expecting them to be cut. Just shows that they
have no idea what they are talking about. I go for at least 6% by year end.
6. financial planner said...
The reason why he's flogging sub5% mortgages is the huge fee which he gets as commission, largely...
7. Cheekie Charlie said...
If my ears didn't decieve me I specifically heard mervin say a few weeks ago that IR were set at the wrong level. To me this means in terms of percentage points not fractions. It seems he doesn't have the balls to carry it out, and the other MPC members who were hand picked by the now prospective PM know exactly where their loyalties lye. All this means is their spineless .25% rises are chasing behind inflation so this will be a long drawn out affair where at the end there will be few winners!
8. Si1 said...
"All well and good but this means that house prices will not generally fall because while people can still get excessively leveraged mortgages from providers."
err, no. The fixes become withdrawn and replaced with higher ones with harder criteria as repo rates go higher, that is they are a punt against the market. If interest rates go higher then the current available mortgages at that time will, of course, reflect the higher rates. Just because someone is able to take out a good fixed rate mortgage now does not mean this same mortgage will be available when rates go up. That is the whole point of fixed rates. So this does NOT mean 'that house prices will not generally fall because while people can still get excessively leveraged mortgages from providers', it just supports a little bit of temporary liquidity for the time being, gradulaly leaking away with each rate rise. And in case anyone forgot, the last crash occurred against a backdrp of FALLING rates, albeit with the Black Wednesday ir blip in 1992, which a bull recently told me didn't happen.