Thursday, Dec 20, 2007
There it is then - MPC targets house prices and inflation can let rip - A one way bet then; this makes me feel quite sick!
Telegraph: Interest rates could fall to 4pc by end of 2008
Interest rates could drop to as low as four per cent next year after the Bank of England indicated a "substantial loosening" of policy to revive the flagging housing market.
Posted by tyrellcorporation @ 09:09 AM (1676 views) Add Comment
45 Comments
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1. Ides Of March said...
Looks like it's confirmed that the BoEs only remit is to follow government policy and keep housing unaffordable.
2. doomwatch said...
The Fed dropping rates has falied to prevent further price drops in the US. Infact, now Manhattan is dropping.
3. waitingfor hpc said...
i will believe it when i see it ..... if we end up with IR's at 4%, that is panic and the die will already have been cast.
4. techieman said...
I really cant believe anyone would be surprised at this. A bit like the ERM - I had some trading friends who bought short sterling even when rates were raised to protect the £ some "economists" / "experts" were saying that the politicians wouldnt let the pound come out of the ERM - but we all know who won that one! Rates will fall - they have no real choice. It just shows you how serious they think this is.
5. eyeoftheweasel said...
Obviously Gordon and his Newer New Labour gang have most of their retirement investments tied up in property. Cutting interest rates like this won't stop property prices falling, but could take some of the real terms sting out of the falls at the expense of pensions, savings, salaries, in fact just about everything else. No wonder Gordon couldn't have cared less about how he completely scr*wed up people's pensions.
I have to say that over the last week or two, my opinion of Mervyn King has rapidly gone downhill.
6. voiceofreason said...
Worth a cross post from the other thread:
Does this mean that what has really happened is that central banks effectively swapped gold backed currency for property backed currency ?
7. eyeoftheweasel said...
Forgot to say, I think in the current climate, the more the MPC etc take these kind of actions, the more it's going to panic people that there is a serious problem, and as a result people are probably going to spend even less on more expensive goods and cheaper houses.
8. eyeoftheweasel said...
Interesting point VOR.
9. Jr_hartley said...
If this is the case shouldn't we be seeing Fixed Mortgage rates dropping fairly soon?
10. Davros said...
doomwatch is right, it ultimately makes no odds once sentiment changes.
Stagflation anyone?
11. justwatching said...
I've just read the article, looks like pure conjecture to me (just read the dictionary def of big word just used, perfect)
I shall now have look at the MPC minutes.
12. cyril said...
I agree with justwatching. Like most of these opinion pieces it is a load of cobblers.
13. justwatching said...
Just got this from homepage;
'One of the Bank of England's two core purposes is monetary stability. Monetary stability means stable prices - low inflation - and confidence in the currency. Stable prices are defined by the Government's inflation target, which the Bank seeks to meet through the decisions on interest rates taken by the Monetary Policy Committee.'
Go on, lets have a vote, is it;
a) a wind up, I just made it up, or
b) the truth?
14. Verymeanreversion said...
>central banks effectively swapped gold backed currency for property backed currency
Cue the creation of the Bank of Englands "House Price Committee" with a 2% annual inflation target.
15. Abandon Ship said...
The BoE lowering interest rates wont make much difference to the outcome because a) the banks are much more risk averse and therefore have stricter lending criteria and wont lend our so much money and cheaply and b) borrowers are at debt capacity or in distress or dont want to take the risk of investing in an asset that is likely to deflate (i.e. a house)
16. N Marks said...
Why is the Govt so hostile towards Mugabe when its clearly adopted his economic policies?
17. justwatching said...
Another corker, from the MPC minutes
'The Bank of England Act 1998 gives the Bank of England operational responsibility
for setting interest rates to meet the Government’s inflation target.'
18. Goodo said...
I love the way the "housing market" is referred to in a similar way to the stock market. revive the flagging housing market indeed. No wonder we're in such a pickle. If people treat property (and land) as an investible asset then the widespread boom which follows leaves very few untouched. It appears that those responsible people who should know better cannot help but try to wrestle with the chimaera that they themselves have created. They'd be better off leaving it to sort itself out. The boom always ends in a bust, whether by house prices falling, or the value of the money used to buy them falling. If lending is freed up again, it appears that we'll have the latter situation, and that affects not only homeowners, but absolutley everybody in the country (even those who chose not to feed the boom and shrewdly kept out). If these "economists" are supposed to be intelligent, I think it's about time I got myself a six figure basic salary.
Goodo
19. hpwatcher said...
Looks like preserving the state the housing market, with it's bubble intact, is the government's number 1 priority. Not surprising the creation of this 'fake' wealth is probably what GB sees as his main achievement.
Housing and housing related activities has now become a core UK industry, without it there will be high unemployment. This policy is only going to change by getting rid of GB.
Whose to blame? All the fools in this country who have borrowed & spent the absolute maximum on housing.
What will happen next? A recession and a house price crash, together with high inflation - just like in America.
20. geed said...
Many of us on this site don't have any debt, we have savings which have already been eroded via inflation massively when compared to house prices, this will only devalue my cash even further. This has confirmed that cash is useless, debt is king. We will not have a deflationary environment, at least the powers that be dont want us to have a deflationary environment.
I still believe house values will come down next year as the banks appear to be acting independantly of the BoE. Libor remains high, and lending practices have been tightened dramatically, but how long before the banks become comfortable with what the central bank around the world are doing. How long before they take the bait of lower interest rates and Libor starts to track the BoE base rate again. Once this happens mortgage rates will reduce and the debt slave can continue on with their merry ways.
There are other issues such as rental yields for BTL etc... which will also support house price reductions next year but an inflationary, low interest rate environment will suppress the falls somewhat and we may be looking at 10-15% falls as opposed to the 30+ falls we all hope for.
Comments....
21. geed said...
....and where to put our stashes in a high inflation environment? Gold, foreign currencies. I have some Australian dollars but Euro must be looking good?
22. mrmickey said...
Could be we might see massive swings in interest rates as the government try to save Sterling & the housing market at the same time, probably ending up trashing both in the process
23. Bouncebackabilitity said...
Sounds good to me prices will fall anyway, then when I step back on a nice cheap mortgage to boot. That is if I need one.
Happy Days
Merry Christmas
24. hpwatcher said...
Geed,
I think a few unforseen events will happen to put even more pressure on the banking industry, that together with severe rises in inflation. UK will have major problems competing with other countries because the cost of living here is so high. That's the advantage that foreign workers have over UK workers, they can work for much less because they don't have massive mortgages/rents to pay. They are quite happy to share floors in rented houses with other workers to keep their costs right down....though, as the recession deepens they will gradually leave the country.
The problem is that the ecomomy isn't built on the creation of any real wealth, only debt. The BOE mickey mouse interest rates and money will gradually become less important.
25. sovietuk said...
Yes but why are house prices high? Because banks have been willing to lend huge sums of money. With the massive change in the financial climate and the risks clearly apparent (e.g Northern Rock), will banks continue to lend like the have done in the past?The evidence from the withdrwal of mortgage products by lenders recently seems to suggest the answer is no.
26. jack c said...
I still think house prices will come down despite the rate cuts and the cash injections into the markets. IMO consumers are pretty much maxed out on Cr cards, unsecured/secured loans and mortgages and it simply can’t go on forever. Affordability is the thing that ultimately underpins the housing market be it either mortgage or rental payments and the affordability “factor” is being eroded month on month. I spoke at length to a specialist lender yesterday who told me that more and more valuers are down valuing properties and the big concern is buy to let – developments in prime locations with a ready made market are being turned down.
Even if the interest rate cuts work it will be relatively short lived in staving off a collapse in house prices and a recession – it will just make the whole thing more painful and prolonged in the end.
27. eyeoftheweasel said...
When it comes down to it, interest rates can't go below zero - or can they?
28. d'oh said...
Personally, I shorted gbp versus yen a week or so ago - up 40% on my original stake at present over the past 2 days. Let's hope they keep devaluing the currency :-)
Seriously though, it is a very worrying time for anyone with significant cash assets etc. Very hard to find safe hiding holes. I fear a lot of frugal people will be heavily punished for being responsible.
29. hpwatcher said...
Jack said ''I still think house prices will come down despite the rate cuts and the cash injections into the markets.''
''Even if the interest rate cuts work it will be relatively short lived in staving off a collapse in house prices and a recession – it will just make the whole thing more painful and prolonged in the end.''
I agree. I think trying to stop falling house prices is rather like trying to stop the tide from coming in. It simply goes against the trend.
The housing industry in this country is too big....unemployment will go up as these folks are surplus to requirement.
30. stillthinking said...
If 100Billion of consumer debt based money shrinks and with government injection becomes (50B consumer backed + 50B gov. printed), wouldn't that mean that there will be inflation anyway ? Because although there is still the same amount of money to uk contents (properties and companies etc) in the second case, so prices will stay the same at the start, subsequently wouldn't it become much easier for consumers to get the money(wages) to repay debts, giving wage inflation.
??????????????????
31. renting2 said...
Debt eating inflation may be the target, but it is also savings eating so no deposits for houses and 100% loans harder to come by. (Who's going to lend/borrow at 100% on a falling asset?).
Valuers downvaluing here too. I know it has caused local est agents much heartache as their chains fall apart.
32. Mentletv said...
This isn't good news. The sale of my house is just about to go through as I move into rented accommodation. I thought I'd done well to sell at the top of the market, but now the equity I put into savings will leach away (in real terms) as inflation rises and interest drops.
33. sold 2 rent 1 said...
IRs are only going one way - down
Deflation will eventually take hold as unemployment rises and consumers pull back spending
I have not seen the headline "wages rise the fastest for 15 years" yet.
No wage rises means no hyperinflation.
There is only one solution - GET GOLD before the GBP tumbles.
34. jack c said...
I'm repeating myself here from one or two previous posts, but the FSA (on a formal visit to NR house in Newcastle) "stress tested" Northern Rock's business model to see if it could withstand a 40% drop in UK house prices - they would not do this if they did not think it could realistically come about.
The Rock situation is much more serious than the public perceive - anyone who watched the whole of the TSC meeting with the Gov and his Deputy (Sir John G) earlier this week as I did will come to realise.
As a consequence of the above and a few other major economic calamities they now appear to be willing to go to almost any lengths to keep this over inflated property market propped up.
35. planning4acrash said...
It is now becoming nasty.
36. renting2 said...
Didn't know about that FSA visit Jack C. Loved to have been a fly on the wall!
Totally agree with you about the N/Rock position.
N/Rock 'Together' range (95% mortgage and up to 30% (as was then - now not so favourable)) unsecured loan.
Loaned out 2-5years ago at under 5% for over 5 times total income.
End of fixed rate goes to SVR 7.69% (ouch!).
Try to get better deal with N/R but their income multiples have been reduced.
House value hasn't rocketed as expected and virtually nothing paid off the capital owed. If house prices go down even modestly??
Another lender - who?? Could transfer the 95% mortgage, but the rate for the huge unsecured loan then goes through the roof.
That's a stress test - for the house owner. Wonder what the FSA made of it at a 40% drop.
37. Ratherworried said...
If all this mess in the financial markets results in high inflation (because of BoE cuttig rates),
would that not automatically mean that banks stop lending or ask for high interest?
Who would lend money today that is worth so much less when he gets it back tomorrow?
High inflation should lead to high market interest rates, or not? Am I getting something wrong?
And an urgent question:
Which building societies or banks do you think are safe to deposit your savings in?
38. geed said...
So in answer to my above post? S2R = Gold? Anyone other options, Where will the FTSE/stocks in general go?
I guess inflation will only exist if people keep buying, people cut back and go back to necessities, then what Deflation as in the House market?
39. uncle tom said...
Even if they knocked a whole percentage point off the bank rate tomorrow, I don't think it would make much difference.
Having fallen over backwards to win market share by underpricing risk, the mortgage lenders are now on the defensive, and scared of lending on the riskier half of the spectrum.
Note my use of the word 'half' - higher income multiples, higher LTV's, BTL and anyone who has the slightest smudge on their record is finding high rates and few takers.
I very much doubt the lender's confidence will be restored before the market implodes.
40. speculatorone said...
Over the last few days Brown et al have been trying their best to bluff everyone into keeping the economic bubble going.
The problem is the agents will see this action as a green light to bump up prices even more.
I thought we had finally reached the tipping point, but now I am doubting this..
41. george monsoon said...
As I posted yesterday, We all heard the big gun go off. Its just a case of waiting for the shell to land and go bang..
In other words, there is no way that government monetary policy will have any real effect on the world falling into recession, or even depression. We are all going that way very VERY soon, I just wish I had some savings to convert into gold.
42. fahrenheit451 said...
Interest rates at 4%, got to be a market hype that's all. They would be fools to let it get so low. What we actualy need is a period of seady inflation to erode the debt problem. Go on de-value the pound and put it back where it should be at about 1.4 dollars or 2 euros, etc. Then folow this up by actually boosting our manufactuing industry (or what's left of it) to compensate for higher import prices and Chinese inflation. This is war now, an economic war, and we are loosing big time.
43. jack c said...
@ Ratherworried "urgent question: Which building societies or banks do you think are safe to deposit your savings in?"
For cash on deposit I favour Building Socities or NS & I over Banks at present - you can obtain the best rates via moneyfacts website - hope this assists and good luck.
44. george monsoon said...
fahrenheit451 said "Go on de-value the pound and put it back where it should be at about 1.4 dollars or 2 euros".
I can see us heading for the 1.4 dollar mark, but the euro is probably too strong to fall back to 2 for a pound. More likely that the Euro will become 1E = 1£
45. sold 2 rent 1 said...
"just wish I had some savings to convert into gold."
Just get canned food instead. It will be worth more in the end.