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Citywire /money - Mortgages: Expect Interest Rate Rises Next Year


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http://www.citywire.co.uk/money/mortgages-expect-interest-rate-rises-next-year/a550165

Despite troubling economic conditions and a bleak employment outlook, despite restricted lending and pitiful property transaction levels, despite even sustained unaffordability, British house prices aren’t falling through the floor. Why not? According to a new survey, the answer is blind faith.

[...]

The Bank’s report also contained a no-nonsense warning: 'At the beginning of the financial crisis, when funding costs rose sharply, banks were relatively slow in updating the price of new mortgages and the residual remained negative for around a year. This suggests it may be during 2012 that any significant increase in banks’ lending rates occurs.'

In other words, no matter what happens or doesn’t happen to the base rate, expect real interest rates to increase in the new year. And don’t be surprised to see the real effects of more expensive mortgages filtering through to house prices. It'll take more than blind faith to overcome those kinds of forces.

Low rates are not "normal".

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Interesting, not just saying that rates will rise in 2012 but that rates will rise in the new year - which is in the next 10 weeks. We shall see.

Caught the Editor of City AM on the Beeb news today talking about the economic crisis - alas, came in as he was finishing talking.

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No chance of rate rises.

It's not the BoE rate they are talking about. They are rightly saying that banks set their own rates dependant upon their conditions, and they are only going to go one way. And much sooner that people think. Interbank lending is incredibly restricted at present. Bad loans on the books are a significant risk too, and forebearance has been incredible to date. With the EU crisis far from resolved something has to change, and if its not more easy and cheap credit then it will have to be lower risk and better margins on the existing loans.

According to Financial Services Authority findings contained in the report, 5-8% of residential mortgages are benefiting from some kind of forbearance on the part of the lender.

Contrary to what the article says, 5 - 8 % is a significant number for banks, more so in a falling market. They will either need to foreclose before they lose too much or increase everyones rates to counter. The latter seems the easy option. Personally I think we will see them do both. Especially as the Yanks are about to buy the almost £1 billion of bad loans from Lloyds.

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It's not the BoE rate they are talking about. They are rightly saying that banks set their own rates dependant upon their conditions, and they are only going to go one way. And much sooner that people think. Interbank lending is incredibly restricted at present. Bad loans on the books are a significant risk too, and forebearance has been incredible to date. With the EU crisis far from resolved something has to change, and if its not more easy and cheap credit then it will have to be lower risk and better margins on the existing loans.

Contrary to what the article says, 5 - 8 % is a significant number for banks, more so in a falling market. They will either need to foreclose before they lose too much or increase everyones rates to counter. The latter seems the easy option. Personally I think we will see them do both. Especially as the Yanks are about to buy the almost £1 billion of bad loans from Lloyds.

+1

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It's not the BoE rate they are talking about. They are rightly saying that banks set their own rates dependant upon their conditions, and they are only going to go one way. And much sooner that people think. Interbank lending is incredibly restricted at present. Bad loans on the books are a significant risk too, and forebearance has been incredible to date. With the EU crisis far from resolved something has to change, and if its not more easy and cheap credit then it will have to be lower risk and better margins on the existing loans.

Contrary to what the article says, 5 - 8 % is a significant number for banks, more so in a falling market. They will either need to foreclose before they lose too much or increase everyones rates to counter. The latter seems the easy option. Personally I think we will see them do both. Especially as the Yanks are about to buy the almost £1 billion of bad loans from Lloyds.

BoE rates need to go up to effect the fixed-rates for a truly clean flush. Otherwise many logs left in the bowl.

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Off-topic, but wow, anyone else notice there were some bulls on the comment thread of that article? Well, bull-ish at least.

House prices will stay stable for next 3 years then slowly increase.

The fact that people feel properties are over priced now is quite comical, we are a long way off the top of price range, which is why so many BTL landlords have appeared. John Lacy's comments are sound and I also agree we have another 10 years of upward (but not linear) progress to go. If Nick74 really believes that house prices will have "a steep fall" then he needs to educate himself a great deal more about the UK property market and the lack of supply now, coupled with an increasing population, less people per household and people's unnecessary desire to own their own properties. As I said it simple supply and demand, something he doesn't seem to understand.

Could just be trolls mind you.

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..coupled with an increasing population..

I suppose when things were booming an increasing population and lax/fraudulent lending to all and sundry might have justified higher house prices.

Now an increasing population seems to imply more and more cheap labour so that doesn't seem very supportive of high house prices. High profits perhaps but high house prices doesn't seem very likely at all.

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I suppose when things were booming an increasing population and lax/fraudulent lending to all and sundry might have justified higher house prices.

Now an increasing population seems to imply more and more cheap labour so that doesn't seem very supportive of high house prices. High profits perhaps but high house prices doesn't seem very likely at all.

Cheap labour can support high house prices.

Increasing incidence of multiple occupation housing will generate high yields to landlords.

Ten labourers each paying GBP150 per month to share a 3 bed terrace in the average town and you have a fantastic yield even allowing for deliquency.

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The fact that people feel properties are over priced now is quite comical, we are a long way off the top of price range, which is why so many BTL landlords have appeared

So its nothing to do with the fact people are desperate to get any kind of return as they're being savaged by a combination of low savings rates and high inflation, along with stupid government perks subsidising it, meaning you can make a massive, leveraged bet with the tax payer to back-stop you.

No, they're all canny investors buying the dips in a huge bull market which has 10 years left to run.

What an utter, utter ****.

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Especially as the Yanks are about to buy the almost £1 billion of bad loans from Lloyds.

It looks like a tranche of commercial property debt they're selling off, rather than residential. Lloyds even has a vehicle to buy property from itself, Tennyson, if they think its a strategically good thing rather than selling onto open market. As of 2010 though there was nothing in it. FT links that can be googled below.

Lloyds to sell £1bn of bad property loans

Lloyds puts bad property assets on market

Lloyds to cut bad real estate loan book

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