Just When You Thought It Couldn't Get Any Worse

[Mr. Miyagi]

Interest rates are set to quadruple within a year, adding more than £100 a month to a typical mortgage, a senior Bank of England adviser has warned.

Families should brace themselves for a rate rise as officials try to get to grips with soaring inflation, said Andrew Sentance, of the Bank’s Monetary Policy Committee.

Mr Sentance added that the ‘balance of opinion’ on the MPC, which sets interest rates, was shifting in favour of an increase – the first since March 2009.

Homeowners should look at City forecasts for interest rates when planning their budgets for the coming months, he said.

Forecasts suggested rates would be ‘getting up to somewhere around about 2 per cent next year’ – four times the current 0.5 per cent rate.

His warning came as a study revealed families were facing the biggest squeeze in household incomes since 1921.

A rise in interest rates could plunge millions of families with tracker mortgages into immediate financial difficulty.

A family paying £635 a month on a £150,000 tracker mortgage, for example, would see repayments soar to £750 a month if interest rates rise to 2 per cent.

But Mr Sentance said that an increase was essential to curb spiralling inflation.

He warned that Britain would face a ‘more difficult situation’ in the future if rates were left at historic lows for much longer. ‘The job of the MPC is really to try to keep on top of things,’ he said.

‘And my argument is that we should already by now have raised interest rates a little bit to respond to some of these threats in the future.’

Interest rates have been at 0.5 per cent since March 2009. But inflation is now more than double the Bank of England’s target rate of 2 per cent.

Meanwhile, the study by the Centre for Economics and Business Research found families will be £910 worse off this year.

Household finances are being crushed by rising prices, fuelled by the VAT rise in January, and low wage rises.

Economists say the impact is bigger than the depression of the 1930s in terms of the drop in spending power and living standards.

The consultancy estimates that disposable incomes will fall 2 per cent this year, following a 0.8 per cent drop last year. The aggregate fall amounts to Britons being £27.3billion worse off.

The country appears to be locked into a period of stagflation, where the economy is growing very slowly while unemployment and inflation are high.

Squeeze: A family paying £635 a month on a £150,000 tracker mortgage could see repayments soar to £750 a month if interest rates rise to 2 per cent

The CEBR expects the annual rate of inflation will be 3.9 per cent this year, which would be the highest since 1992.

That compares to much lower wage growth of 1.9 per cent.

It said high prices are mainly a result of surging global commodity prices, particularly oil, and the rise in VAT from 17.5 per cent to 20 per cent in January.

Research shows people are cutting back on the amount of food, clothes and holidays they buy.

As a result, the CEBR is pessimistic about economic growth this year, suggesting a figure of just 1 per cent.

That is well below the forecast from the Office of Budget Responsibility of 1.7 per cent.

Angela Eagle, shadow chief secretary to the Treasury, said: ‘Families facing a big squeeze on their incomes this week know that cuts which go too deep and too fast are hurting, but the evidence is now growing that they’re also not working.’

Responding to the study, a Treasury spokesman said: ‘The Government has introduced measures to help, including a cut in fuel duty and an increase in the personal allowance that will benefit 25million taxpayers and take 1.1million individuals out of tax altogether.'

http://www.dailymail.co.uk/news/article-1375572/Interest-rates-quadruple-year.html

[interestrateripoff]

Responding to the study, a Treasury spokesman said: ‘The Government has introduced measures to help, including a cut in fuel duty and an increase in the personal allowance that will benefit 25million taxpayers and take 1.1million individuals out of tax altogether.'

Generous and doesn't the tax cut take effect next year? Hardly helps this year does it.

Although I'd argue things are going to get a lot lot worse and this is a mere picnic.

[Realistbear]

Listening to R4 this morning and they were interviewing an economist from Harvard who said our debt issues are extremely serious, especially private debt which was worse than most nations. He thought things would have to get rough before they improve--in other words Gordon's lunch bill remains outstyanding. He could not see real recovery for a decade.

I think the professor was right. One IR hike and its all over.

[Mr. Miyagi]

Listening to R4 this morning and they were interviewing an economist from Harvard who said our debt issues are extremely serious, especially private debt which was worse than most nations. He thought things would have to get rough before they improve--in other words Gordon's lunch bill remains outstyanding. He could not see real recovery for a decade.

I think the professor was right. One IR hike and its all over.

To paraphrase, we are fo0ked.

[234SALE]

Lets get this party started,,

We've had 2 years to get the house in order, but many just took the advantage and kept spending.

If you have a house, with a massive mortgage, you should of sold it over the last 2 years...

Now the time comes to throw back the keys...

Interest 5% = 40% off current prices

This will be good for all of us in the long run,, cheap money / debt is not.

Edited April 11, 2011 by 234SALE

[Pent Up]

Just a shame Mr Sentance will l vote in his last meeting next month.

[finallysold]

wow 2% interest rate and we are all doomed. wonder how we managed 5% plus interest rates. i want interest rates to rise. i went for a 5 year fixed rate yet all the tracker mortgages are paying a lot less than me and i am waiting to be proved right!!! think i will probably be waiting for a long time. could also do with some better savings rates

[hpc-craig]

Lets get this party started,,

We've had 2 years to get the house in order, but many just took the advantage and kept spending.

If you have a house, with a massive mortgage, you should of sold it over the last 2 years...

Yep, I can think of a couple of people who were really struggling before the rate cuts - mortgage payments were being put on Credit Cards!!

Then the cuts and 'things are easier for us now', so I imagined and even suggested to one that this would be the ideal time to over pay the mortgage as rates would not stay low for ever.

What happens next? A new car! On credit of course, but it's another thing going out every month and less fuel efficient than the previous vehicle.

[jonboy2010]

http://www.dailymail.co.uk/news/article-1375572/Interest-rates-quadruple-year.html

Good get them up A.S.A.P its about bloody time.

[NEO72]

Ability to service mortgage eroded by 1) inflation or 2) rising IRs - the classic pincer movement.

There was no easy way out of this hole and there never will be. The HPC is unstoppable now, just a question of how far prices fall.

[GinAndPlatonic]

wow 2% interest rate and we are all doomed. wonder how we managed 5% plus interest rates. i want interest rates to rise. i went for a 5 year fixed rate yet all the tracker mortgages are paying a lot less than me and i am waiting to be proved right!!! think i will probably be waiting for a long time. could also do with some better savings rates

It would be interesting to know what rate people here are paying as of right now.

I`m paying 3.49% with Halifax. svr

[Nationalist]

Andrew Sentance has been voting to raise rates for ages now. His view has not prevailed on the MPC which seems likely to get even more doveish when he leaves.

In practise our low interest rate doesn't really apply to most people. You can't get a new mortgage anywhere near 0.5%. And you can quite easily get more than 0.5% on deposits. They've broken their one lever of control, so when they pull on it likely nothing will happen, to start with anyway.

I think the MPC could triple the BR without much effect, no increase in deposit rates and probably even a hold on SVR mortgage rates. The minority on trackers would notice but that's about it.

The real problem is when the world notices that the BoE doesn't really care about inflation, or worse, cares but no longer has the power to control it. Then they'll be dropping sterling like hot potatoes because it no longer acts as a store of value. A falling pound increases the inflation in the system, since the inflation is coming from abroad, which then triggers more falls in the pound. You have a death spiral.

When this will happen, I've no idea. But Andrew Sentance is right - far better to start pulling up now before being forced. The correction required will be greater the longer we leave it. MK retires in 2013. I think that's how far into the future he hopes to kick the can.

[crouch]

Listening to R4 this morning and they were interviewing an economist from Harvard who said our debt issues are extremely serious, especially private debt which was worse than most nations. He thought things would have to get rough before they improve--in other words Gordon's lunch bill remains outstyanding. He could not see real recovery for a decade.

I think the professor was right. One IR hike and its all over.

In my view we've been living in a fool's paradise for the last couple of years. He's quite right and all we've done is kick the can down the road but, sooner or later, the bill will be presented and folks are not going to like it.

[Georgia O'Keeffe]

In my view we've been living in a fool's paradise for the last couple of years. He's quite right and all we've done is kick the can down the road but, sooner or later, the bill will be presented and folks are not going to like it.

i dont think hes totally correct, i believe private debt in the UK is the highest in the world rather than one of the worst, but then thats to be expected at the top of a debt cycle when it is the major global financial centre , not alot the citizens could do to stop it happeneing really

[Bloo Loo]

i dont think hes totally correct, i believe private debt in the UK is the highest in the world rather than one of the worst, but then thats to be expected at the top of a debt cycle when it is the major global financial centre , not alot the citizens could do to stop it happeneing really

top?...they want this to be the gentle inclines of the exponent!..the nursery slope for wimps.

[winkie]

....rates will have to go up, others around us have raised their rates....keeping rates as they are will fuel inflation, that is bad for everyone.....confidence in the pound is key, to increase confidence rates will have to rise so giving some strength to the pound, that brings the cost of oil and imports down, the things we all rely on...the cost to people who over stretched themselves borrowing, buying and spending on excessive debt they can not afford, living up to and over what they could realistically pay back will be only a minor consideration....

[SEW247]

It would be interesting to know what rate people here are paying as of right now.

I`m paying 3.49% with Halifax. svr

0.11 below BOE until May 2013.

Am preparing myself for significant rate hikes and will pay off a nice chunk to pay off if needs be.

Pretty worrying as I cant really see what rates might potentially be in 2013 2%? 4% 5%? 6% 7%?

[Reck B]

Lets get this party started,,

We've had 2 years to get the house in order, but many just took the advantage and kept spending.

If you have a house, with a massive mortgage, you should of sold it over the last 2 years...

Now the time comes to throw back the keys...

Interest 5% = 40% off current prices

This will be good for all of us in the long run,, cheap money / debt is not.

This is what the recovery could look like;

Edited April 11, 2011 by Reck B

[mitchbux]

It would be interesting to know what rate people here are paying as of right now.

I`m paying 3.49% with Halifax. svr

BoE+0.5%, lifetime.

[lurker07]

A family paying £635 a month on a £150,000 tracker mortgage, for example, would see repayments soar to £750 a month if interest rates rise to 2 per cent.

I'm not quite sure how £635 to £750 is SOARING ???

[exiges]

It would be interesting to know what rate people here are paying as of right now.

I`m paying 3.49% with Halifax. svr

That's quite an expensive SVR if you don't mind me saying.. is that to say when base rates are 3% your rate will be 5.99% ?

[The Masked Tulip]

I thought I would find loads of ha ha type posts on this thread. When I read the DM article my response was just going to be 'PMSL'.

But I come here expecting to find a cheerful response, a 'I told you so' mentality and general happiness and there seems to be more negativity on here.

Is this not great news for a house price crash?

Someone post a photo of that kid from The Simpsons who goes around pointing a finger saying "Ha Ha!"

I need to go get coffee or I would do it myself.

[Lagarde's Drift]

I think maybe it's finally dawning on some HPCers that a HPC will be disastrous for the country either as a precipitant or side-effect, either way we will all have to share some pain.

[The Masked Tulip]

Oddly enough, I had a dream on Saturday night... OK, I should be dreaming of Jennifer Aniston and Kelly Brook, together, but...

...I had a dream about Mervyn King doing a short 2 minute interview on the Beeb where he warned house owners that the BOE's role was not one of protecting house prices and that home owners should prepare themselves for interest rate rises.

In my dream he even went on to say that asking prices in the UK were too high and warned people off getting into massive debt now with IRs about to rise.

I put it down to a nonsensical dream but... I am begining to wonder if it was a moment of synchronicity. OK, I got the wrong BOE guy but, you never know, we might now be seeing the beginning of a move by the BOE to start warning us what is to come.

[goldbug9999]

i went for a 5 year fixed rate yet all the tracker mortgages are paying a lot less than me

Er thats the whole point of fixed rate offers - to make you pay more in the long run in exchange for having your transient outgoings capped.