Friday, Mar 27, 2009
This should scare the sh*te out of any recent buyers who bought on monthly affordability.
Telegraph: Interest rates could increase 'with vigour', warns chief economist
The Bank of England's chief economist has warned that policy-makers will hike interest rates back up with "vigour" when needed, to keep inflation in check.
Posted by flintster1994 @ 02:36 PM (1899 views) Add Comment
15 Comments
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1. uncle tom said...
Yes, interest rates will rise; not because the MPC will WANT to put them up so much, but because they will HAVE to put them up.
Despite the impression repeatedly given, they really have very little leeway. The markets dictate the range that interest rates have to be set at, and the MPC has to decide whether to set at the top, middle or bottom of that spectrum.
Having embarked on the policy of QE, the 2% target will almost certainly prove impossibe. Nor is such a low rate of inflation desirable now.
2. rocket robbie said...
Uncle Tom
Will they still raise IR if the economy is still stalling and house prices still falling??
3. uncle tom said...
"Will they still raise IR if the economy is still stalling and house prices still falling??"
Yes - it's actually a likely scenario, as inflation takes off.
4. crunchy said...
GOOD let's start getting real and crack on with HPC.
Living in a fools paradise too long! Welcome to rip-off Britain, and some thought it had become the milk and honey land. lol
Where did my lifestyle just go? It never really was there dear!
5. mrmickey said...
Under the normal course of events the banks would have had to raise interest rates to attract savers in to build up their reserves. I can only assume that this is not happening because the tax payer is acting as a open cheque book to the banks.
6. mark wadsworth said...
I have a nasty feeling that Mr Mickey has got it right. Base rate was 2% for over ten years in the Great Depression (although what was so great about it eludes me).
Plus, apparently you can get 4 year fixed rates of 4% ish, altho' Jack C may differ.
7. a saver said...
In a speech to insurers, Monetary Policy Committee member Spencer Dale stressed the Bank's focus will remain centred on the need to keep inflation on track with the Government's 2 per cent target.
Since when were the MPC focused on keeping a lid on inflation? They've happily lowered interest rates repeatedly despite runaway house prices and more recently, soaring food and fuel costs. BTW just heard that my bro is planning an extra holiday as he's saving 13K a year on his tracker mortgage, guess it makes up a bit for the capital loss he's taken. He's on a long sick leave after a hip op, oh to be on the public payroll (he's in the police)...
8. 51ck-6-51x said...
David Miles' review of the UK mortgage market
"""
1.6
There is clear evidence that:
• A great many households – particularly amongst first-time buyers – attach overwhelming weight to the initial monthly repayment on mortgages. They focus much less on where the burden of debt repayments might be some way ahead, even though mortgage debt is long-lived. And where debt is at variable rates there is great uncertainty about how affordability will evolve.
• Many borrowers have a poor understanding of the risks involved with different mortgages. The risk issues are subtle and complex, so it is no easy task to assess them. Since mortgage debt is long-term the risks come from unexpected movements in incomes, in interest rates and in house prices over an extended period – a period that most definitely extends beyond a year or so ahead. The information people receive on mortgage products often does not help them greatly in assessing whether the risks they are taking are really acceptable to them.
"""
9. britishblue said...
I have a feeling we may see a dead cats bounce in the housing market at the end of the year. As the Halifax and Nationwide indexes drift into the -30% there will be a great cry from the vested interest groups along the following lines:
a. House prices are now below their long term average ( as measured by the Nationwide Index)
b. Repayments are at an all time low
c. If you don't buy now you might miss the boat
This will coincide with some of the QE measures kicking in, slightly easier to get mortgages and infrastructure stimulus hitting the economy and we could start to see some ups and downs on the monthly house price indices.
However, this will be a precursor to inflation and the need to ease up interest rates. Given that the long term average for interest rates is 5.5% and we have stoked more fuel on the fire than ever before, it wouldn't seem unreasonable in the next few years that interest rates have to break through this average. This could well be the catalyst that breaks a short housing recovery into a more downward spiral.
10. Waitin2geton-wid-my-life said...
i'm debtfree+ a'str'. Wondering if anyone else received an unsolicited text from unfamiliar mobile no.: ''Drowning with bills?A new government solution can wipe 100%of ur debt.reply help... etc''
11. japanese uncle said...
Anyone who recently bought properties for the first time has obviouly very little brain, so must be imcapable of feeling any scare, anyway.
12. jack c said...
@mark wadsworth Friday, March 27, 2009 03:58PM - Mark the rates might look attractive on the surface but the arrangement/booking/valuation fees have crept up dramatically - as a consequence I have just organised a fixed rate for a guy @ 5.59% fees free.
In my opinion rates are set to rise sharply in approx 12-18 months time - see lead story on FT adviser http://www.ftadviser.com/FinancialAdviser/Regulation/Regulators/Treasury/News/article/20090327/330bfcec-1ad8-11de-84e6-00144f2af8e8/Interest-rates-could-rise-as-sharply-as-they-have-fallen.jsp
13. stillthinking said...
Mervyn is forced into these kind of drastic announcements, but what the market needs is for Brown to announce the cuts required to repay the debt. Threatening to drastically raise interest rates is equivalent to saying, don't worry, we will restrict private sector borrowing to compensate for the government's debt hole.
14. Xoman said...
Japanese uncle,
I bought very recently a house ... But not to a private seller through an Estate agent but at auction. I believe right now and the past months have been the best times to buy a almost new property at auction for a deep discount from August 2007 prices.
Looking at the way the government is managing the economy I am glad I did ... That money (and it was a lot of money as it was ~50% deposit) sitting at the bank was making me nervous and giving me no interest.
That was my first property ever ... And I have a normal brain ;-)
Also I have been following HPC for several years now. And I am glad that I am out of renting for good.
15. Hev said...
While the cats away- the mice do tell the truth!