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What Does Base Rate Need To Hit To Bust The Uk Mortgage Market?

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Trying to get my head around the situation that the UK is in and that it potentially could go Japanese (if it hasn't happened already); by that I mean that the central bank interest rate can not be raised above X due to the number of mortgage holders and banks impacted.

Knowing that 8 or 9 out of 10 are now on a tracker mortgage and assuming quite a high percentage of them will be on BOE + 2% (ish), how far can cantral interest rates be raised before the impacts on the economy become counter productive and forced sales are no longer practical i.e. if base rate hit 15% all of the above would be unable to pay the interest, but repossession is unlikely due to the sheer numbers affected (correct me if I'm wrong). Is 6% the new maximum???

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If inflation was 15% no one would be able to afford their mortgage either. At least with IR rises only the indebted suffer and the cash rich benefit and spend.

High inflation is much more damaging than high interest rates.

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I think at 5% things would get funny but I dont really see the IR as a big factor, high IR combined with a lack of jobs a crazy inflation is a different matter but if you look at the below chart there is a massive gap between base rates and fixed rates thus all in IR hike would do is close the gap not really raise the rates IMHO.

Picture3.gif

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I put 0.5% becuause suve a rate will destroy incomes and expenditure via inflation just as surely (if not more thoroughly across the mass population) than having a sensible rate. The bubble will still burst and the longer it takes the more it will take with it. This is not the 70's, incomes will not increase in line with the money printing.

Edited by OnlyMe

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The cost of petrol and increasing tax burden are much more significant IMO.

Monthly fuel + income tax + NI is several times the monthly payments on my 100k repayment mortgage. Base rate could go up by a factor of 20 and would still be less.

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I doubt it could go Japanese because at the height of their bubble in 1990 the Japanese actually had savings to start with--a cushion--unlike the UK and US. Infact they had almost 3x the savings as a percent of GDP that we have had for the last 10 years. Low base rates simply accelerate the decline. The fiat money system is based on savings capital, so you can draw your own conclusions from that. However, I'm not sure how well uneducated masses can grasp the concept of inflation, just as they never really understood APRs or how base rates affected them, the understanding of real vs nominal prices seems way too distant a dream and the mere mention of Quantitative Easing can send one of these people into a chilling, seemingly endless gaze from which there appears to be no escaping. To some this is understandable as there are other things in life to worry about, but to the politicians and financial elite this is a weakness which will be, and is being, exploited to the full.

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I think at 5% things would get funny but I dont really see the IR as a big factor, high IR combined with a lack of jobs a crazy inflation is a different matter but if you look at the below chart there is a massive gap between base rates and fixed rates thus all in IR hike would do is close the gap not really raise the rates IMHO.

Picture3.gif

The current gap looks like a disjointed market, there just doesn't seem to be the appetite to raise IR in the same manor that the market has priced in. Things are different this time, for one the banks need to recapitalise and are charging bigger spreads on trackers and in a self defeating attitude to risk charging prohibitive fixed rates.

I also agree with OnlyMe: “This is not the 70's, incomes will not increase in line with the money printing.”

To summarise: inflation tearing away, IR unable to be raised for fear of destroying the false recovery and incomes falling to come in to line with global markets. I’m beginning to conclude that the UK has gone past the point of no return and that we are now into a self destructive cycle that can’t be broken.

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I think at 5% things would get funny but I dont really see the IR as a big factor, high IR combined with a lack of jobs a crazy inflation is a different matter but if you look at the below chart there is a massive gap between base rates and fixed rates thus all in IR hike would do is close the gap not really raise the rates IMHO.

Picture3.gif

I've been looking for graphs like this. Do you have any for other types of mortgage? (Fix/Variable, 3yr, 2yr etc?) What's your source?

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I don't think we will see any significant IR rises for years.

It is a win win for banks.

I think they are delighted with the situation.

They give nothing out on savings yet can charge 6 or 7 percent on mortgages and more on other loans.

WOW! What a win win for them.

I think they are laughing at us.

Even worse, I do not think we will see a return to any decent returns on savings in banks for 5 years at least if ever.

The genie is out of the bottle now and they know they have got away with it.

It is the same for the US.

We can talk about inflation but they are just ignoring it here in the UK and to a lesser extent in the US - but the Yanks are not facing the same extent of inflation as we are... yet... so the only way I can see IRs rising is if the Yanks do so to quell their inflation... but that could be some time away.

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I don't think we will see any significant IR rises for years.

It is a win win for banks.

I think they are delighted with the situation.

They give nothing out on savings yet can charge 6 or 7 percent on mortgages and more on other loans.

WOW! What a win win for them.

I think they are laughing at us.

Even worse, I do not think we will see a return to any decent returns on savings in banks for 5 years at least if ever.

The genie is out of the bottle now and they know they have got away with it.

It is the same for the US.

We can talk about inflation but they are just ignoring it here in the UK and to a lesser extent in the US - but the Yanks are not facing the same extent of inflation as we are... yet... so the only way I can see IRs rising is if the Yanks do so to quell their inflation... but that could be some time away.

Well my zopa account tells me that the banks keep getting people defaulting on their loans. I have earned £580 on my account but had £680 in bad loans(would have earned £1260 if I hadn't had bad debt). I think the banks are having the same problem.

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I've been looking for graphs like this. Do you have any for other types of mortgage? (Fix/Variable, 3yr, 2yr etc?) What's your source?

I just knocked it up myself using the BoE data sets adn excel. I'm going to do a 2y fixed one as well, not sure if the data is there for variable but will take a look

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Well my zopa account tells me that the banks keep getting people defaulting on their loans. I have earned £580 on my account but had £680 in bad loans(would have earned £1260 if I hadn't had bad debt). I think the banks are having the same problem.

That's interesting, thanks for sharing. Zopa always used to pride itself on the ultra-low default rate, even in the riskiest of markets. Over 40% default is miles away from that.

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That's interesting, thanks for sharing. Zopa always used to pride itself on the ultra-low default rate, even in the riskiest of markets. Over 40% default is miles away from that.

I had thought about get involved in Zopa, but when I looked at what people were requesting money for, it looked very risky.

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Problem is that the government has done everything so far to avoid mass repossessions. A rapid increase in interest rates would only mean a deal would be done with the banks to defer/cancel/reduce debts to avoid mass bankruptsy and repossessions, along with increased government help including extensions of existing schemes. Once people become aware that defaulting on the mortgage is almost the norm then this option will become more palatable, much like bankruptcy is almost socially acceptable now.

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If inflation was 15% no one would be able to afford their mortgage either. At least with IR rises only the indebted suffer and the cash rich benefit and spend.

High inflation is much more damaging than high interest rates.

exactly

i put 1%

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Problem is that the government has done everything so far to avoid mass repossessions. A rapid increase in interest rates would only mean a deal would be done with the banks to defer/cancel/reduce debts to avoid mass bankruptsy and repossessions, along with increased government help including extensions of existing schemes. Once people become aware that defaulting on the mortgage is almost the norm then this option will become more palatable, much like bankruptcy is almost socially acceptable now.

Exactly right. In my opinion, the best thing for HPCers to do would be to start a campaign highlighting and encouraging mortgage default, the SMI system would have to collapse if millions were doing it.. What a ridiculous country Britain is.

For the record I put 4 percent. Which is why they won`t raise them there.

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Exactly right. In my opinion, the best thing for HPCers to do would be to start a campaign highlighting and encouraging mortgage default, the SMI system would have to collapse if millions were doing it.. What a ridiculous country Britain is.

For the record I put 4 percent. Which is why they won`t raise them there.

What's the budget for SMI?

Or is it flexible?

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I had thought about get involved in Zopa, but when I looked at what people were requesting money for, it looked very risky.

Yep, like this one on their front page:

"I'm getting divorced and borrowing this money means I can pay my solicitor and get everything finalised. I was 30 yesterday, and hopefully 30 is the beginning of the rest of my life!" kim1976

Or this...

"I'm having some dental treatment privately to give me back my smile." smartipants

And this...

"My son and I are buying season tickets for Newcastle United." JohnL

A loan for solicitors fees, cosmetic dentistry or football tickets? Um, no thanks!

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What's the budget for SMI?

Or is it flexible?

I think that I have read on here that it was 400 million pounds, but that would surely be expanded. Some extraordinary information from this website, which however does not look to be an official government website. Apparently people who took a mortgage before 1995 are eligible to receive it. How could someone have bought a house in 1995 and not have paid it off by now?

http://www.governmentmortgagehelp.co.uk/ways-of-aiding-you-with-repaying-your-home-finance-loan/

My point anyway is that this ridiculous system cannot continue if it gets to the point where a quarter of the population is on it. And a banker bashing stop paying your mortgage campaign would have a chance of success if supported by a few well chosen celebrities.

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  • 276 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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