Markets Expect Interest Rate Cut And No Increase To 0.75% Until April 2017

[scottbeard]

According to the Mail, money markets are predicting the next movement in the Base Rate will be down, and that it will be 2018 before rates are as high as 1% again.

Link

What do you think?

Personally I think the next move WILL be down, and rates will stay low for at least all of 2013, but trying to predict beyond 2013 is a mug's game. Rates could just as easily be 0% or 10%+, depending upon whether we are Japan or Zimbabwe.

If HPC is still going I will try and remember to revisit this thread when there's a change!!

Another valid question of course is how relevant the Base Rate is given relatively few people are on true lifetime tracker mortgages. However, to me it surely is a key driver of mortgage rates and decisions, even if not many people directly pay Base Rate +/- X%.

[crashmonitor]

If base rates do stay under 1% for the next six years, it would be indicative of house prices being flat or falling for the next six years. Most hpcers would trade falling prices for not receiving much interest.

[thecrashingisles]

It all depends what the US Federal Reserve does. When they change policy things will move very quickly here.

[Democorruptcy]

They will increase the base rate the same day they increase QE above £500bn.

[zugzwang]

I expect UK sovereign debt to start blowing up before the general election in 2015. In fact base rates should be higher already to defer some of the commodity shock coming our way this year and next. There's no room for any further QE.

I'd pick Argentina rather than Zimbabwe or Japan as guide to the UK's inflation prospects.

[Ash4781]

Can the Daily Express print a story about cheap mortgages? Looks like the economy is fooked. The Telegraph did have a chart with the months from the recession to recovery.

[R K]

If base rates do stay under 1% for the next six years, it would be indicative of house prices being flat or falling for the next six years. Most hpcers would trade falling prices for not receiving much interest.

Not if they decide to target nominal gdp to close the GDP trend gap since '08 or even if they simply decide to wait until inflation has fed through to wages for a couple of years.

As it stands of course the nominal house price low remains Spring '09.

[bmf]

If base rates do stay under 1% for the next six years, it would be indicative of house prices being flat or falling for the next six years. Most hpcers would trade falling prices for not receiving much interest.

Eh? If I have 150k saved now I'd be getting bugger all interest as they do a soft default. With inflation running above interest rates real returns would be negative.

If prices for houses hold in nominal terms though I might get that up to 180K nominal at 3.5% compound I'd be well out of pocket. I want a HPC!

[gf3]

Being a bit of a Douglass Adams fan I hope they do cut interest rates down to 0.25% because that would cut my mortgage rate from 0.67% down to 0.42%.

My monthly interest would go down from £40 to £26 so it would make b***er all difference to me really.

[Bruce Banner]

Being a bit of a Douglass Adams fan I hope they do cut interest rates down to 0.25% because that would cut my mortgage rate from 0.67% down to 0.42%.

My monthly interest would go down from £40 to £26 so it would make b***er all difference to me really.

It probably wouldn't make much difference to the £1,200 bank interest I currently receive on the money that I previously had tied up in a house either. The difference between us is that I don't own a house but have the cash to do so and you "own" a house but have to pay for it on the never, never. Which of us will benefit most when interest rates inevitably rise and house prices, equally inevitably, fall?

[gf3]

It probably wouldn't make much difference to the £1,200 bank interest I currently receive on the money that I previously had tied up in a house either. The difference between us is that I don't own a house but have the cash to do so and you "own" a house but have to pay for it on the never, never. Which of us will benefit most when interest rates inevitably rise and house prices, equally inevitably, fall?

To be honest with you Bruce. I have found having high levels of debt very corrosive.

To find myself divorced in 2007 44 years old with over 4 times my salary in debt and a credit crunch to boot. It has been a horrible 5 years.

I find I don't really like my house much now too many years saving with my life on hold.

Another 2 years and I should have my mortgage nailed.

The sad thing is I never want to share my house again with some one that will take half my house again.

[Lion]

According to the Mail, money markets are predicting the next movement in the Base Rate will be down, and that it will be 2018 before rates are as high as 1% again.

Link

What do you think?

Another valid question of course is how relevant the Base Rate is given relatively few people are on true lifetime tracker mortgages. However, to me it surely is a key driver of mortgage rates and decisions, even if not many people directly pay Base Rate +/- X%.

I cannot see a rate increase for 10 more years to come. After that it is difficult to predict. Of course, financial armageddon might happen sooner than in 10 yrs, but interest rates will then hardly be a concern - it will then be survival of the strongest. The cause for the financial problems of the world is the financial system as such (bank create money as debt out of nothing that then attracts interest that can only be paid by creating more debt etc.), not the eurozone crisis. As much as I despise the financial system I have accepted that I cannot change it and have used it to my advantage - buying a London flat in 2004 (when all on this site advised me against doing so), using the profit to move up the ladder to a nice house in a good area of North London a few years later and taking out a BOE +0.6% lifetime tracker just before interest rates were smashed. I hope the next move will be down again - the current rate saves me a lot of interest but you can never save enough interest - what we save is almost pays for our son's school fees.

Having debt really is the new way of saving money. Not that it is right, but what else can the governments do (the solutions presented on this site like accepting the losses now and move on will not fly as the losses will take the current economical system down and therefore all governments in the world try to avoid it as long as possible. Eventually a correction will happen, but it will be slow and drawn out over decades like in Japan. Bad news for would be FTBers who wait for fair house prices - this makes me feel sad, but I am happy that we accepted defeat in 2004 and gave up waiting. We might have waited for the rest of our lives. This was not an option we wanted to risk - renting would have been an option for instance in Germany, but tenancy agreeements in this country are a joke. Initially we needed protection from greedy landlords (so we bought the flat) and then our young child needed a garden (so we bought the house).

Edited September 9, 2012 by Lion

[Bruce Banner]

As much as I despise the financial system I have accepted that I cannot change it and have used it to my advantage - buying a London flat in 2004 (when all on this site advised me against doing so), using the profit to move up the ladder to a nice house in a good area of North London a few years later and taking out a BOE +0.6% lifetime tracker just before interest rates were smashed. I hope the next move will be down again - the current rate saves me a lot of interest but you can never save enough interest - what we save is almost pays for our son's school fees.

I fear that yours will be one of the sadder cases, because you ignored the advice that could have saved you from substantial financial loss.

By the time you are halfway through paying for it, your house is likely to be worth half what it was when you took out your mortgage. You may think you're sitting pretty now, but interest rates will rise sooner than you think and the London market is set for big falls over the next few years. Just because it hasn't fallen yet doesn't mean that it won't as the biggest housing bubble ever, deflates.

[Arbitrage]

I fear that yours will be one of the sadder cases, because you ignored the advice that could have saved you from substantial financial loss.

By the time you are halfway through paying for it, your house is likely to be worth half what it was when you took out your mortgage. You may think you're sitting pretty now, but interest rates will rise sooner than you think and the London market is set for big falls over the next few years. Just because it hasn't fallen yet doesn't mean that it won't as the biggest housing bubble ever, deflates.

Shouldn't be so smug brother. Holding all your wealth in fiat hasn't been the smartest of moves has it?

Since 2006 petrol, food, electricity are all up 30% plus measured in fiat terms. That means your stash of cash only has 70% of its previous purchasing power

[NEO72]

Shouldn't be so smug brother. Holding all your wealth in fiat hasn't been the smartest of moves has it?

Since 2006 petrol, food, electricity are all up 30% plus measured in fiat terms. That means your stash of cash only has 70% of its previous purchasing power

Yes, its well documented that Bruce's saving are earmarked for food, electric and petrol so of course you're precisely right.

[Bruce Banner]

Shouldn't be so smug brother. Holding all your wealth in fiat hasn't been the smartest of moves has it?

Since 2006 petrol, food, electricity are all up 30% plus measured in fiat terms. That means your stash of cash only has 70% of its previous purchasing power

I'm in pocket by well over £100K so far, so not too shabby .

Yes, its well documented that Bruce's saving are earmarked for food, electric and petrol so of course you're precisely right.

[Bloo Loo]

I cannot see a rate increase for 10 more years to come. After that it is difficult to predict. Of course, financial armageddon might happen sooner than in 10 yrs, but interest rates will then hardly be a concern - it will then be survival of the strongest. The cause for the financial problems of the world is the financial system as such (bank create money as debt out of nothing that then attracts interest that can only be paid by creating more debt etc.), not the eurozone crisis. As much as I despise the financial system I have accepted that I cannot change it and have used it to my advantage - buying a London flat in 2004 (when all on this site advised me against doing so), using the profit to move up the ladder to a nice house in a good area of North London a few years later and taking out a BOE +0.6% lifetime tracker just before interest rates were smashed. I hope the next move will be down again - the current rate saves me a lot of interest but you can never save enough interest - what we save is almost pays for our son's school fees.

Having debt really is the new way of saving money. Not that it is right, but what else can the governments do (the solutions presented on this site like accepting the losses now and move on will not fly as the losses will take the current economical system down and therefore all governments in the world try to avoid it as long as possible. Eventually a correction will happen, but it will be slow and drawn out over decades like in Japan. Bad news for would be FTBers who wait for fair house prices - this makes me feel sad, but I am happy that we accepted defeat in 2004 and gave up waiting. We might have waited for the rest of our lives. This was not an option we wanted to risk - renting would have been an option for instance in Germany, but tenancy agreeements in this country are a joke. Initially we needed protection from greedy landlords (so we bought the flat) and then our young child needed a garden (so we bought the house).

Of course, with inflation striking at borrowing power...the driver of asset prices...the only course open is to lower interest rates...this has been the way of "controlling" the economy for the last 30 years....lower rates...increases spending and makes the economy grow,

FAst forward to today, and the interest rate tool is maxed out, and even as posters suggest your buying power of everyday items has decreased by 30%, asset prices are tipped to fall again, the only way out being to yet again lower rates.

As a poster pointed out, an already stupidly cheap loan becomes even more stupidly cheap, this doesnt help that particular lender at all.

New loans are getting rarer and rarer and more expensive.

the pincer movement on house prices is about to complete....expensive borrowing and reduced repayment power.

The Central banks, wishing to preserve banks, have nowhere to turn to, other than talk of further inflationary action.

The writing is on the wall, regardless of how little your mortgage is costing for the small number with Base+ .5% and in some cases, Base Minus, the cost of new borrowing, which determines prices, is rising, so while you may be "saving" on the monthly cost, that house is no longer earning anything through capital gain.

We now have a £150-160BN deficit....tax rises and job losses are built in the future....a collapse is going to occur...worse now than if they had let it happen in 2007.

[Bruce Banner]

Since 2006 petrol, food, electricity are all up 30% plus measured in fiat terms. That means your stash of cash only has 70% of its previous purchasing power

Thinking about it, those things will be mostly covered by by our (index linked) state pensions, when we reach state pension age. In the meantime, they are still adequately covered by my personal pension annuity.

Seeing as most people don't retire until they receive their state pension, they don't have to worry about day to day inflation, their savings are left for asset and "big ticket item" purchases and asset and "big ticket item" prices are deflating.

[Lion]

I fear that yours will be one of the sadder cases, because you ignored the advice that could have saved you from substantial financial loss.

By the time you are halfway through paying for it, your house is likely to be worth half what it was when you took out your mortgage. You may think you're sitting pretty now, but interest rates will rise sooner than you think and the London market is set for big falls over the next few years. Just because it hasn't fallen yet doesn't mean that it won't as the biggest housing bubble ever, deflates.

That would be true if we could not still easily afford to pay for our mortgage whatever comes, and as we are happy with our house there is no need to move.

In any case, "half way through" is still 10+yrs away - by then our son will almost be going to uni (if he wishes) and buying a house with garden then would be a bit pointless.

Buying was not only motivated by financial considerations. It is difficult to put a price on enjoying our lovely garden on a day like this... knowing that no greedy landlord can throw us out and I will be able to enjoy the work I put in this house and garden for many years to come, and will see the plants I planted this weekend grow over the next few years. I agree there is the theoretical possibility that buying will at some stage make us finacially somewhat worse off than renting would have made us. Either way, we will be fine financially.

If interest rates really rise, we will still be able to afford it (we got our mortgage when interest rates were 5%, and at that time we made sure we could afford 10% - it would not be easy, but possible). If interest rates really hit 10%, there will possibly then be a general increase of inflation, including wage inflation - essentially wiping out our debt. But I think more likely are VERY low interest rates for a VERY long time. For the time being we have enjoiyed the unexpected saving of many thousands of pounds per year for a long time now and are looking forward to many more years of similar savings - and try to make the best of it.

Edited September 9, 2012 by Lion

[bmf]

That would be true if we could not still easily afford to pay for our mortgage whatever comes, and as we are happy with our house there is no need to move.

In any case, "half way through" is still 10+yrs away - by then our son will almost be going to uni (if he wishes) and buying a house with garden then would be a bit pointless.

Buying was not only motivated by financial considerations. It is difficult to put a price on enjoying our lovely garden on a day like this... knowing that no greedy landlord can throw us out and I will be able to enjoy the work I put in this house and garden for many years to come, and will see the plants I planted this weekend grow over the next few years. I agree there is the theoretical possibility that buying will at some stage make us finacially somewhat worse off than renting would have made us. Either way, we will be fine financially.

If interest rates really rise, we will still be able to afford it (we got our mortgage when interest rates were 5%, and at that time we made sure we could afford 10% - it would not be easy, but possible). If interest rates really hit 10%, there will possibly then be a general increase of inflation, including wage inflation - essentially wiping out our debt. But I think more likely are VERY low interest rates for a VERY long time. For the time being we have enjoiyed the unexpected saving of many thousands of pounds per year for a long time now and are looking forward to many more years of similar savings - and try to make the best of it.

Once again we have the issue of people who can buy a house outright like Bruce (very rare) compared to people who are buying a house on credit at the start of their lives using a mortgage.

The two are not comparable as the latter does not have an opportunity cost, only the choice of paying large % of their monthly wages to a landlord or a bank.

[Lion]

Thinking about it, those things will be mostly covered by by our (index linked) state pensions, when we reach state pension age. In the meantime, they are still adequately covered by my personal pension annuity.

Seeing as most people don't retire until they receive their state pension, they don't have to worry about day to day inflation, their savings are left for asset and "big ticket item" purchases and asset and "big ticket item" prices are deflating.

This may suit you but would not suit a young family - how long should they wait? We would have still wait for decades to retirement.

Anyone who is close to retirement now should not be smug about their achievements as they had huge unfair advantages that are not available to their children and grand children: Low contributions to pensions and healthcare compared to what they expect to take out of the system (for their children it will probably be the other way around), low house prices, low university fees, inflation in the 70s that wiped out a lot of mortgage debt, and house price increase in the 90s and 00s that benefited again mainly that generation. Demographic changes also favour them - the younger generations has to carry a far heavier burden of pensioners than et any time in history - and it is only going to get worse if you look at demographic predictions. The generation around 60 or older enjoyed a good life and then the ladder was pulled up behind them when it became evident that their way of life was not sustainable.

I am NOT saying anyone is individually to blame - but they happily enjoy that unfair advantage and even boast about it as if it they deserved any of it. They did and do not - they were just lucky to live at the right time, and now dig their heels in when the government tells them the promises they were given are unsustainable (regarding pension age, pension level, pension contributions - especially for public sector employees all over the western world).

Pensions should in future also be linked to the demographic changes, not only to an inflation index - less workers should mean automatically a shrinking pension pot, even if the number of pensioneers increases, unless it can be proven that productivity also increases. Otherwise the government spending on pensions keeps rising while the taxes go down - how does that work out in the long term?

[Lion]

Once again we have the issue of people who can buy a house outright like Bruce (very rare) compared to people who are buying a house on credit at the start of their lives using a mortgage.

The two are not comparable as the latter does not have an opportunity cost, only the choice of paying large % of their monthly wages to a landlord or a bank.

Well, there are also many people between these two extremes, like us, who have a significant deposit and income but could not buy outright (we still needed to borrow 80%).

Edited September 9, 2012 by Lion

[bmf]

Pensions should in future also be linked to the demographic changes, not only to an inflation index - less workers should mean automatically a shrinking pension pot, even if the number of pensioneers increases, unless it can be proven that productivity also increases.

Why not have a referendum on it? Oh - they'd all bankroll themselves.

Otherwise the government spending on pensions keeps rising while the taxes go down - how does that work out in the long term?

Good for them, bad for you. They couldn't give a monkey's. It's just a joke.

In fact here you go, from parliament.co.uk, "The ageing population":

10 million people in the UK are over 65 years old. The latest projections are for 5½ million more elderly people in 20 years time and the number will have nearly doubled to around 19 million by 2050.

Unfortunately this only shows the projection until 2015, but you get the idea, it's going up up up up.

Extrapolate the above to a doubling of pensioners by 2032 and you can see which way the UK is going.

Edited September 9, 2012 by bmf

[Noginthenog]

We now have a £150-160BN deficit....tax rises and job losses are built in the future....a collapse is going to occur...worse now than if they had let it happen in 2007.

Totally agree with this, governments of course just look at the short term like they did in 2007. There will be a default somewhere in the future, either by recession or by inflation.

It won't be pretty....

[zebbedee]

The bond markets will decide.