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There Is No Limit To Interest Rate Cuts

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From the Times Today.

Note the sentence "No limit to cuts to maintain the economy" now that does make it interesting.

Interest rates: more cuts to come?

The City and business has applauded the Bank of England's 0.25 per cent cut in interest rates. But the debate has already moved on to what's in store next month. By Graham Searjeant, The Times Financial Editor

The Monetary Policy Committee's decision to cut the Bank of England interest rate from 4.75 per cent to 4.5 per cent at its 100th meeting was, by intention, probably the most universally expected move in the MPC’s eight-year history.

The monetary debate has already moved on.

The issue is whether this can already be taken as the first in a new series of cuts designed to reawaken the economy or should be viewed just as a precautionary one-off, to make sure growth does not slip too far while consumers and homebuyers were wondering whether to go back into action.

The Halifax, Britain's biggest mortgage lender, cut its main mortgage lending rate within a few minutes of the Bank of England's move, suggesting that HBOS, the Halifax's parent, reckons that after two years, the interest rate trend has decisively turned.

Homebuyers will hope it is right.

Any interest rate cut is welcome to borrowers, if not savers. But a quarter point cut, even from an historically low peak, will only cut current mortgage interest dues by 5 per cent.

For credit card borrowers and most businesses, the impact is negligible. Any impact on the sterling exchange rate had happened in advance.

The prospect of a series of rate cuts would be quite different. Homebuyers could go ahead in the confidence that nothing nasty was likely to happen in the first year or two. Consumers would feel safer in their jobs.

Rate cuts can seem almost like a licence to spend and rack up more debt. Industry could plan on the basis that the pound was likely to become more competitive over the next year.

In the City, economists and traders are already looking for two or three cuts, perhaps taking the rate down to 4 per cent. Unless oil prices stoke inflation, however, there is no limit to cuts if they are necessary to stop the economy settling into stagnation.

More cautious voices note that consumer borrowing, on mortgages and on credit cards, is till rising at 10 per cent a year. Yet homebuyers are still thought to be on the edge of their ability to pay and bad debts are already accumulating from credit cards.

The last thing the Bank wants is to reignite a house price boom. Unemployment is about as low as it can get without causing labour shortages so a period of slower growth makes sense, so long as it is not too slow.

Both consumers and financial markets should be watching next week’s Bank of England Inflation Report and the minutes of yesterday’s meeting a week later to see which argument is more likely to prevail.

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From the Times Today.

Note the sentence "No limit to cuts to maintain the economy" now that does make it interesting.

Interest rates: more cuts to come?

The City and business has applauded the Bank of England's 0.25 per cent cut in interest rates. But the debate has already moved on to what's in store next month. By Graham Searjeant, The Times Financial Editor

The Monetary Policy Committee's decision to cut the Bank of England interest rate from 4.75 per cent to 4.5 per cent at its 100th meeting was, by intention, probably the most universally expected move in the MPC’s eight-year history.

The monetary debate has already moved on.

The issue is whether this can already be taken as the first in a new series of cuts designed to reawaken the economy or should be viewed just as a precautionary one-off, to make sure growth does not slip too far while consumers and homebuyers were wondering whether to go back into action.

The Halifax, Britain's biggest mortgage lender, cut its main mortgage lending rate within a few minutes of the Bank of England's move, suggesting that HBOS, the Halifax's parent, reckons that after two years, the interest rate trend has decisively turned.

Homebuyers will hope it is right.

Any interest rate cut is welcome to borrowers, if not savers. But a quarter point cut, even from an historically low peak, will only cut current mortgage interest dues by 5 per cent.

For credit card borrowers and most businesses, the impact is negligible. Any impact on the sterling exchange rate had happened in advance.

The prospect of a series of rate cuts would be quite different. Homebuyers could go ahead in the confidence that nothing nasty was likely to happen in the first year or two. Consumers would feel safer in their jobs.

Rate cuts can seem almost like a licence to spend and rack up more debt. Industry could plan on the basis that the pound was likely to become more competitive over the next year.

In the City, economists and traders are already looking for two or three cuts, perhaps taking the rate down to 4 per cent. Unless oil prices stoke inflation, however, there is no limit to cuts if they are necessary to stop the economy settling into stagnation.

More cautious voices note that consumer borrowing, on mortgages and on credit cards, is till rising at 10 per cent a year. Yet homebuyers are still thought to be on the edge of their ability to pay and bad debts are already accumulating from credit cards.

The last thing the Bank wants is to reignite a house price boom. Unemployment is about as low as it can get without causing labour shortages so a period of slower growth makes sense, so long as it is not too slow.

Both consumers and financial markets should be watching next week’s Bank of England Inflation Report and the minutes of yesterday’s meeting a week later to see which argument is more likely to prevail.

The case for bulls is doomed really, as far as IRs go. MPC would love stagnating prices at worst, but there is no way they will reignite further HP increases by lowering rates. However, there is no guarantee that IR drops will be sufficient to reverse or stop the current trend of rapidly falling prices.

Last night at a family wedding my amateur BTL brother, whose rent has never paid his mortgage, told me that his BTL flat has been revalued at 15k less than he paid for it in 2003. It's in Harrow, London.

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And even the famed Roger Bootle has trimmed his trough even further from a previous 3.5% to who knows what?

http://business.timesonline.co.uk/article/...1722005,00.html

Roger Bootle, an economic adviser to Deloitte, the accounting group, said: “I think rates will be at 4 per cent by Christmas and that they will fall all the way to 3.5 per cent by the middle of next year.

“But given that 3.5 per cent was the trough of the last cycle, when the consumer and housing markets were strong, it is plausible that rates will go even lower.”

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It's unsurprising that once one cut had happened you'd get a load of squealing for more more more.

Fine well let's have Interest Rates at zero then, borrow infinites amount of money to prop up house prices. Let's crash the pound and send ourselves into an economic abyss.

:angry:

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And even the famed Roger Bootle has trimmed his trough even further from a previous 3.5% to who knows what?

http://business.timesonline.co.uk/article/...1722005,00.html

i agree with bootle i think rates will be cut further, lower than 4%, but this wil not bolster the housing market since it has problems other than interest rates to contend with. 

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Guest Charlie The Tramp
And even the famed Roger Bootle has trimmed his trough even further from a previous 3.5% to who knows what?

UK the next Japan? :D

Edited by Charlie The Tramp

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Why don't we have negative interest rates? Then we can make money from borrowing money! I'm amazed no-one has thought of this.

Great idea!

The banks pay us to borrow their money, no need to work, fantastic!

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The lowering of interest rates has back fired and now requires further cuts to have any impact. This move designed as a psychological boost to the housing market was quickly countered by economists warning of manufacturing recessions, record borrowing and the remaining stalemate in housing.

Two young muppets I work with quickly played the "I told you so, housing prices will rocket again". They promptly left the office Friday morning and returned with stacks of property details which they eagerly flicked through acting like a couple of kids. By the afternoon the mood was a lot less confident with one a potential FTB deciding he still couldn't afford a rabbit hutch, and the other who owns a studio flat wold need to take out a multiple of 6 times his salary to be able to trade up. Both agreed by 5pm that its done nothing to help this failing market.

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Guest boredwaiting
The case for bulls is doomed really, as far as IRs go. MPC would love stagnating prices at worst, but there is no way they will reignite further HP increases by lowering rates. However, there is no guarantee that IR drops will be sufficient to reverse or stop the current trend of rapidly falling prices.

Last night at a family wedding my amateur BTL brother, whose rent has never paid his mortgage, told me that his BTL flat has been revalued at 15k less than he paid for it in 2003. It's in Harrow, London.

If interests rates do keep dropping then there certainly will not be a case for a house price crash - there are no shortage of people that are happy to take immense amounts of credit to live in the here and now without a thought to what will happen when the can't pay it off.

I am really frustrated by this entire situation, I have an above average salary (worked and studied hard for that) and can't even buy a semi without being serious stretched......

With the rate cut and many people talking about further rate cuts, how will house prices drop?

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Guest Time 2 raise Interest Rates

Front page saturday EXPRESS, "DEBTS ARE WORST FOR 45 YEARS".

Just a few comentes.

More people are crippled by debt than EVER BEFORE.

Insolvencies in the THREE MONTHS TO JUNE UP 15,394 up 36.8% on 2004.

There were 11,195 BANKRUPTCIES up 7.8% on previous quarter 27% up on 04.

Individual voluntary arrangments 4,199 an INCREASE OF 69.6% on 04.

HALIFAX SHOWED HOUSE PRICE INFLATION LOWEST IN TEN YEARS.

Barclays revealed bad debtup 20% to £706million.

Barclaycard suffered with the mounting debt CRISIS, profits FALLING 17%

People in the UK aren't financially intelligent enough for low interest rates.

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If interests rates do keep dropping then there certainly will not be a case for a house price crash - there are no shortage of people that are happy to take immense amounts of credit to live in the here and now without a thought to what will happen when the can't pay it off.

I am really frustrated by this entire situation, I have an above average salary (worked and studied hard for that) and can't even buy a semi without being serious stretched......

With the rate cut and many people talking about further rate cuts, how will house prices drop?

Isn't the answer in your question? You earn above average salary and still can't afford a semi with out silly multiples of your salary. How the hell is somebody on an average or below that gonna to afford anything? Further interest rate cuts will make no difference to this fact. However the amount of buyers able to enter the market will decrease. Please tell me how interests rate cuts will help them?

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Front page saturday EXPRESS, "DEBTS ARE WORST FOR 45 YEARS".

Just a few comentes.

More people are crippled by debt than EVER BEFORE.

Insolvencies in the THREE MONTHS TO JUNE UP 15,394 up 36.8% on 2004.

There were 11,195 BANKRUPTCIES up 7.8% on previous quarter 27% up on 04.

Individual voluntary arrangments 4,199 an INCREASE OF 69.6% on 04.

HALIFAX SHOWED HOUSE PRICE INFLATION LOWEST IN TEN YEARS.

Barclays revealed bad debtup 20% to £706million.

Barclaycard suffered with the mounting debt CRISIS, profits FALLING 17%

People in the UK aren't financially intelligent enough for low interest rates.

I feel no matter how low interest rates go now, we have far too much debt both as a country and also with the people who live here.

I feel a "credit crash" is now innevitable which in turn will affect the housing market in a dramatic way through repossessions and loan defaults. Visa and Mastercard today announced a sort of "Pay as You Go" credit card coming into operation next month, which allows people with bad credit records to have a drecit card. These cards must be topped up first before use. These companies are not stupid, they know something big is on its way and need to find ways of keeping their business turning over.

If there is a "credit crash" then it worries me just how far it could go and eventually could bring this country to its knees.

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Guest Time 2 raise Interest Rates

BARCLAYS SLASHES ITS CARD LIMITS.

Barclays has started CUTTING the borrowing limits of credit card customers beginning to feel the strain OF HIGHER COUNCIL TAX, UTILITY BILLS, MORTGAGE

AND NATIONAL INSURANCE PAYMENTS. Barclaycard managimg director Gary

Hoffman said the division had so far cut the cradit limits of 83,000 card customers.

"We are cutting the credit limits of customers who we think are approaching the

limit of what they can afford to pay". said Hoffman

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Well, it is all very well to talk about confidence: but where do the interest rates really have to go to make the market add up?

As everyone here knows, the market must be supported from the bottom up. Historically first time buyers make up around 50% of the market; but they are now languishing at 20-something percent (record lows). But FTBs have been at historic lows since around 2002, including periods when the base rate was 3.5%. The obstacle to FTBs is, quite simply, the massive ratio of house prices to average salary, not interest rates. With the exception of those gifted deposits, a handful of lagging sheep (although lemmings would be a more accurate description) and a few that made or came into a lot of money, FTBers are out of the market.

What about BTL? Well, according to ARLA geared BTL returns on original investment are in the region of -2% for a geared investment in Greater London for the last quarter. Geared investments will benefit from the interest rate cuts, and usefully ARLA publish their working calculations, so this allows me to produce this graph:

rateofreturn.gif

As you can see, interest rates need to be around 4% (UK as a whole) or 3.5% (greater London) just for the rate of return to keep up with inflation! To get a decent return worth the risk and hassle of property (I've assumed 7.5%), base rates need to be around 1.5% to 2% - and this assumes that all of the base rate change is passed on to the customer.

Even if we did see rates this low what would happen? BTL might hold off the imminent crash, which would be postponed until interest rates were forced up again by global economic conditions. But this would mean UK rates at perhaps 3% below US rates - sterling would be massacred.

You can talk about consumer confidence all you like, but the numbers simply don't add up: there is a big shock in the pipeline in property, and Mervyn King "Canute" trying to hold it back isn't gonna work.

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If interests rates do keep dropping then there certainly will not be a case for a house price crash - there are no shortage of people that are happy to take immense amounts of credit to live in the here and now without a thought to what will happen when the can't pay it off.

I am really frustrated by this entire situation, I have an above average salary (worked and studied hard for that) and can't even buy a semi without being serious stretched......

With the rate cut and many people talking about further rate cuts, how will house prices drop?

Firstly, you are of course assuming that they will able to get hold of the money in the first place from banks who have already started tightening lending criteria.

Secondly , and I'm certainly no expert, but I'd suggest that the 'Well' of people that are prepared to do this is drying up.

Dames

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I think it is possible that interest rates will continue to fall. Unless we get an inflationary shock (and that is very possible from things like oil etc., but by definition unpredictable) the powers that be will see rate cuts as the easy option.

Interest rates may even fall to near 0%. That will be great news for people like TTRTR in the short term because their debt replayments will go down. Unfortunately, many people who have overstreached themselves will still go bankrupt as credit card debt will be unaffected by lower interest rates.

The falling rates senario would happen against economic slowdown and rising unemployment and it is unlikely house prices will hold up well against this backdrop.

It all adds up to being a bad time to be young in this country. Already victims of the transfer of wealth due to asset inflation they will face poor job prospects going forward.

Tough times ahead for many I think :(

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Why don't we have negative interest rates? Then we can make money from borrowing money! I'm amazed no-one has thought of this.

I seem to recall a period, a few years ago, when the Swiss had negative interest rates to discourage people buying their currency. In other words, when you put money on deposit in Swiss Francs you _paid_ the bank interest. So, it's quite possible.

p

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IInterest rates may even fall to near 0%. That will be great news for people like TTRTR in the short term because their debt replayments will go down. Unfortunately, many people who have overstreached themselves will still go bankrupt as credit card debt will be unaffected by lower interest rates.

Exactly - rate cuts don't help you if you have numerous cerdit cards and mountains of unsecured debts as cuts don't get passed on...

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Guest Charlie The Tramp
I thought you didn't trust Bootle's predictions TTRTR?

He does when Roger speaks his lanquage, made a couple of correct predictions in the past and now believes he is an economic guru.

Give me Stephen Roach anytime, and John Butler of HSBC.

Wait for the coming MPC minutes, if King, Large, Tucker, and Lambert did not vote for a hold then I will have to buy a property to let, cash mind you, before HPI hits 20%. :D

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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