Friday, May 01, 2009
Interest rates to rise to 9% in 12 months?
BBC News: City Diaries: 30 April 2009
These diaries are written by people who work in finance and have had a front row seat as their industry goes through the biggest changes in decades.
The most interesting comment for me was the one by 'Anthony' (not his real name) who works for an investment bank in the City. He says:
"It is true that retail sales have grown by a miniscule 0.3% but that is just a reflection of the fact that people in work have seen a sharp reduction in their mortgage payments. Those out of work are still spending their redundancy packages.The problem is that interest rates will have to rise to attract investors who have to fund our huge borrowing requirement. It is expected that those in negative equity will see their variable mortgage rates rise to 9% in the next 12 months."
16 Comments
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1. crunchy said...
If you see Sid, tell him!
2. devo said...
As flashman said: " We're up $hit Creek without a paddle" !!!
3. mander said...
Are the interest rates working anymore? Would a 9% make a diference? Anyone? Argentina's experience provides any clues?
4. devo said...
Deflation v hyperinflation.
The global economy cannot withstand a sustained period of deflation; therefore, hyperinflation it is.
5. cyril said...
Anthony is right - the green shoots are appearing because the recession hasn't had any effect on people who still have jobs. In fact they are laughing because mortgage rates are so low. The govt must be hoping that confidence will return before the interest rates (and taxes) have to go up to pay for all this public borrowing.
6. devo said...
"People... are laughing because mortgage rates are so low."
Nah! Most people aren't laughing - they're too busy worrying about their job security.
7. devo said...
"The govt must be hoping that confidence will return.."
Do you see a catalyst for confidence? No, me neither.
8. britishblue said...
It is surely now more risky to to out a new mortgage debt than any time in our history. There is no joy in green shoots if you live next door to an active volcano.
9. devo said...
"It is surely now more risky to to out a new mortgage debt than any time in our history."
The banks have recognised this.
10. Bear said...
Nonsense, expect double digit variable rates within the year. Historically, this level of government borrowing should send interest rates to the moon. It will.
11. nomad said...
The deflation argument is to ask how inflation can take off when there is so little money about, - drops in salary and increasing unemployment, maxed out on borrowings.
I'm with this thread on inflation and the unpalatable answer is that we pay more or do without. We are going to be much, much worse off.
Not at all a bad thing if we buy to our needs and not to our aspirations - and cut that debt.
12. house said...
Live on need basis rather than on a want basis. That has been my philopsophy and I provide the same advise to anyone else.
13. denzil said...
"Interest rates to rise to 9% in 12 months?"
Yeah right! Interest rates will NOT rise to 9% in 12 months. They may rise to 9% at some point in the future but it will not be in 12 months.
I will very happily be proven wrong.
14. str 2007 said...
I've said before that I've seen alot of sales going through in the South Hampshire area and in addition not much sign of a fall in asking prices.
Well in the last 2 weeks not only have I seen 2 houses return to the market that were sold and at lower prices, I can now also confirm that 2 houses for sale at peak 2007 are now back on at just under 20% off the 2007asking price.
Surprisingly this coincides with the reported signs of green shoots in various economies.
The question is, are we as a nation at that point where we've just taken out a huge loan and feel good because there's plenty of money in the bank, but the reality of the repayments hasn't hit us yet ?
My personal gut feeling is that we can't possibly be bottoming out already from such a severe crisis, can we ?
Yet I also see not only everyday houses selling but also 'top of the range' for area sales going through in the £8-900k bracket (where you'd think people should know what may be coming).
So quite a confused picture really.
Re: Anthony's diary and 9% interest rates. He specifically seems to site those in negative equity getting 9% repayment rates. Not sure why and what he's basing that on. Whether or not he means those currently paying 6-7% will get a 2-3% hike in interest rates or that base rates will rise to perhaps 6-7% is not clear.
I feel fairly confident you won't see this happen within the year or within a year for that matter.
The question for me remains, if interest rates stay low will the news of these green shoots and 20% lower prices have the self fulfilling prophecy of being the bottom of the market ?
For me personally I think I shall sit off a while longer, for some reason I feel more convinced than ever a further 20% fall is likely, but time will tell on that one.
However if I was one of those people (and there's quite alot of them) who are in 'safe jobs' with steady incomes, I probably couldn't resist getting out of rented now.
15. Tenyearstogetmymoneyback said...
Just read the article.
I would guess that the reason for his comment about people in negative equity paying 9% is that what they are
getting is effectively a large unsecured loan. As Northern Rock found out with their Together mortgage, giving a
£125000 loan on a £100000 house is really no different to giving out an 100% mortgage and a £25000 unsecured loan.
Its actually worse than someone with a £100000 mortgage spending £25000 to buy a car on HP (remember that) as at
least then there was about £20000 worth of car as collateral.
:- Duncan
16. peeping tom said...
Mortgage rates may well rise, but the base interest rate will only rise when the IMF steps in. Even if the base rate were say 5%, banks and building societies could not match it as they will be taking the hit from such huge losses on the sales of repossessed properties.