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Will Rates Go Up?

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I read that DT article and broadly agree with the contributors. In other words, interest rates will stay low for a very long time - maybe 20 years.

My reasons are: Large parts of the world have been in the grip of the fever of property inflation, both residential and commercial. Some countries have escaped this, such as Germany but their banks, as are the other EU banks, are trapped.

Dubai is probably the last Hurrah of the property boom. I've just returned from there and large parts of Business Bay are half built and seem to be going no where, the towers in the Jumeirah area look to have very low occupancy an the Palm Deira, Palm Jebel Ali and the World land-creation projects are all on stop. Rental & asking prices have slumped 50% +. Nakheel's owner, Dubai World, who built the World and the Palms, had debts of $60b +.

Interest rate increases would cause widespread defaults on property loans and screw the banks. Even property value right-downs screw the banks as LTVs go against them.

The property sector has the banks by the balls and the banks have governments by the balls. And governments can QE to keep the bond markets quiet and socialise the debt.

Its simply going to take a long, long period for property debt to be paid down by borrowers or written down or off in manageable chunks by banks. The lowest possible interest rates and a bit of general inflation will speed this up but I see a period of wage deflation looming, so, the pay back period will be longer as banks "extend and pretend" without righting off or writing down loans.

All of this will allow property prices to flat line or slowly drift down over a period of many years.

All IMHO

Edited by Harold Bishop

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I tend to agree - can't see IRs rising for years. It would kill the banks, it would kill house prices and they want low IRs to get people into shares.

I think we are in a new era now where people are simply in masses of debt and will have little to spend so shares will be screwed for years. Only job cuts will bring down house prices now but they are stubborn here in the UK.

I can't see IRs rising for 5 years currently.

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I read that DT article and broadly agree with the contributors. In other words, interest rates will stay low for a very long time - maybe 20 years.

My reasons are: Large parts of the world have been in the grip of the fever of property inflation, both residential and commercial. Some countries have escaped this, such as Germany but their banks, as are the other EU banks, are trapped.

Dubai is probably the last Hurrah of the property boom. I've just returned from there and large parts of Business Bay are half built and seem to be going no where, the towers in the Jumeirah area look to have very low occupancy an the Palm Deira, Palm Jebel Ali and the World land-creation projects are all on stop. Rental & asking prices have slumped 50% +. Nakheel's owner, Dubai World, who built the World and the Palms, had debts of $60b +.

Interest rate increases would cause widespread defaults on property loans and screw the banks. Even property value right-downs screw the banks as LTVs go against them.

The property sector has the banks by the balls and the banks have governments by the balls. And governments can QE to keep the bond markets quiet and socialise the debt.

Its simply going to take a long, long period for property debt to be paid down by borrowers or written down or off in manageable chunks by banks. The lowest possible interest rates and a bit of general inflation will speed this up but I see a period of wage deflation looming, so, the pay back period will be longer as banks "extend and pretend" without righting off or writing down loans.

All of this will allow property prices to flat line or slowly drift down over a period of many years.

All IMHO

MHO concurs 100%.I think we might see a drift downwards for the rest of this year.The ending of HIPS has clearly put a lot more property onto the market,the agents boards have shot up like a veritable forest around here.Of course a lot of these sellers will be hit and hope merchants testing the market but it must weaken prices. My guess is a mid/high single digit fall followed by a long period of price stagnation.I am far from convinced that this savage cut strategy is going to work.Blanchflower seems to make more sense to me than any of the others.You don't sack a million people and then rely on them to spend their way out of trouble.We are back to Thatcherite economics of the madhouse.

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If interest rates are going to stay at 0.5% for 10-20yrs, then maybe HSBC would like to offer me a mortgage fixed at say 2.5% for 20yrs then ?

No ? Why not ?

Even so, regardless of the BOE rate, banks seem to be setting their own rate way above that, unlike a year or two ago.

Edited by exiges

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If interest rates are going to stay at 0.5% for 10-20yrs, then maybe HSBC would like to offer me a mortgage fixed at say 2.5% for 20yrs then ?

No ? Why not ?

Even so, regardless of the BOE rate, banks seem to be setting their own rate way above that, unlike a year or two ago.

Britannia Lifetime Tracker is 2.5%. It'll stay at 2.5% so long as base rates are 0.5% ( I think I understand that right ). You just have to make a decision on base rate movements !

http://www.britannia.co.uk/_site/channels/mortgage/products/existing-borrower/variable-rates.html

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The ending of HIPS has clearly put a lot more property onto the market,

HIPS cost about £150. The real cost of house moving is estate agents fees and stamp duty. Add in removals etc and the cost of moving can be around £20,000 for a family home. I don't think ending HIPS has anything to do with the increase in houses coming to the market.

Maybe a lot of "unintentional" BTL landlords are seeing high competition, increasing vacant periods, rents falling and margins being squeezed, rent defaults, tenants utility bills in default, high maintenance, repair and service costs. Frankly, its generally crap being a responsible landlord and very easy to end up subsidising your tenants.

I think the recent spike in house prices with the threat of interest rate rises has just triggered these people to sell.

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HIPS cost about £150. The real cost of house moving is estate agents fees and stamp duty. Add in removals etc and the cost of moving can be around £20,000 for a family home. I don't think ending HIPS has anything to do with the increase in houses coming to the market.

I disagree, I think people accept paying for moving/agent fees once a house is sold, but I don't think people like to pay upfront for a HIPS pack on the offchance they may sell their house, particularly in a stagnant market where nothing is selling.

If the agent had added the cost of the HIPS to their fee things would be different.

Edited by exiges

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Yes they will.

Probably Dec/Jan.

Don;t confuse BoE Rates with funding rates.

BoE rate is the IR you'll get when you park money with BoE.

The funding rate is how much it costs the bank to raise money to lend out.

The bank will then have a spread over the funding costs - 2% for a v. good customer - ginving you the bank's SVR

There is some money available for mortgages at the BoE rate but not a lot.

The bulk of money will be from bond sales, retail deposits.

The funding cost is distorted by the BoE buying bonds. Not sure what the yield would be but probably 1 or 2% points higher than it is now.

The wholemarket is still in shock at moment. Banks are worried about the soon to end Special Liq. scheme.

This will force them to raise money at much higher cost.

The whole low interest thing can only a last a relative short time. We are getting to the end of the period; the BoE cannot keep supporting everything.

It has to walk away and let the market price credit.

ANyone benfitting from lowe mortgage rate should be paying down the captial as much as possbile to preapre for when the SVR goes a lot higher:

BoE @ 5% + fuding spread of 2% + 1% tax to pay back government = 8% for a very good risk with large deposit.

In the short term, the housing market will be driven by the lack of mortgage finance and higher public sector unemployment.

At the moment, there are a large number of properties coming up for sale with very few mortgages.

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My advice on interest rates is to ignore anyone that says what the rates are likely to be in 9+ months time. Too much can happen in that time.

NO!

Do not burry your head in the sand and do not ignore various points of view whatever side of the coin.

Do take notice and do make a valued decision based on the information in front of you. Enjoy the currently low rates (if you can take advantage of them) but DO NOT assume they will carry on for the duration of your mortgage and do not over stretch yourself with a new mortgage at these unprecedented lows… allow yourself breathing space.

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NO!

Do not burry your head in the sand and do not ignore various points of view whatever side of the coin.

Do take notice and do make a valued decision based on the information in front of you. Enjoy the currently low rates (if you can take advantage of them) but DO NOT assume they will carry on for the duration of your mortgage and do not over stretch yourself with a new mortgage at these unprecedented lows… allow yourself breathing space.

No need to bury head in sand. Read the data and other people's opinions by all means.

My point is that it is not possible to determine the position of interest rates for any more than 9 months ahead of time. Frankly anyone who says that interest rates are going to be low (or high) for the next 20 years is just spouting nonsense. The number of factors to be taken into consideration is too great. Even 2 years is too long.

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With inflation at say 4-5%, surely (mid-long term) rates have to be at least that, otherwise lenders are effectively giving away money.

Mortgage rates are normally inflation + 2-3% no ?

cpi-rpi-inflation-interest-rates.jpg

Edited by exiges

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  • 145 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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