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Dave Beans

Interest Rate Rise 'a Last Resort' To Cool Housing Market

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http://www.telegraph.co.uk/finance/personalfinance/interest-rates/10644679/Interest-rate-rise-a-last-resort-to-cool-housing-market.html

The Bank of England will only use interest rate rises to cool the housing market if its financial stability toolkit is "not up to the job", one of its policymakers has said. David Miles, an external member of the Monetary Policy Committee (MPC), said rate rises were a "big stick" that would only be used as a last resort.

“We do have, as the last line of defence, the blunt instrument, the big stick of interest rates,” he told Bloomberg TV. “If you did get into a situation where the tools that the Financial Policy Committee (FPC) have seem not up to the job of stopping overheating in the housing market, we would then turn to the blunter instrument of using bank rate.

"We’re a long way from that.”

The Government handed the Bank of England sweeping powers last year to regulate lenders as well as monitor the financial system and prevent shocks. Last week, Mark Carney, the Bank's Governor, severed the link between the unemployment rate and an interest rate hike.

He said the Bank's revamped forward guidance policy "highlighted a clear division of responsibilities between monetary and macro-prudential policy", suggesting the FPC will do most of the heavy lifting to prevent house prices spiralling out of control. Mr Miles also said borrowers should start thinking about the impact of a rate rise on their personal finances.

"[it is] important that there is a clear recognition by borrowers and lenders that interest rates will not remain at this level for many years to come,” he said. “They need to think very carefully what’s going to happen when the cost of that mortgage moves up.”

Mr Miles said Britain's housing market was not currently at risk of overheating. “We’re in a situation where the national figures for house prices are substantially influenced by the south east, London,” he said.

...what a half wit...and sod all those savers who've been shafted by low interest rates...

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The Government handed the Bank of England sweeping powers last year to regulate lenders..

No they didn't. Con Carney just said today he had no power to stop that sort of stuff.

Stop lying.

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http://www.telegraph...ing-market.html

...what a half wit...and sod all those savers who've been shafted by low interest rates...

The thundering dunces at the BoE simply let the last bubble run away until it burst catastrophically. Mervo the Clown even got a knighthood for it!

Same faces... same economic model... same outcome this time.

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To be fair, the logic is completely correct.

The market value of one single commodity should not be a driver for setting the central bank's base rate.

The damage is separate and has already happened, that is to say that the market value of one single commodity is so fundamental to the smooth functioning of the nation's economic system. The fact that this is true is evidenced by the suggestion that one might consider using it's market value as a key factor in setting central bank base rates.

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The thundering dunces at the BoE simply let the last bubble run away until it burst catastrophically. Mervo the Clown even got a knighthood for it!

Same faces... same economic model... same outcome this time.

Same bubble!

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:lol::lol::lol:

They wouldn't know what a "financial stability toolkit" was if it was staring them in the face.

You know - they are next to the mints in most garages...

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David Miles, an external member of the Monetary Policy Committee (MPC), said rate rises were a "big stick" that would only be used as a last resort.

Unlike QE which only affects...?

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Is generally chatting about interest rates possibly going up , maybe, sometime, one of the BoE's famous tools for controlling the housing market ?

They do seem to do it a lot and we all know it's total B.S !!!

Maybe actually raising the rates would have more effect.

Who voted for the BoE ?

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Just a question.....?.but why should BofE base Rate be in any way linked to the interest rates banks who are in business to make money charge for their lending?......payday loans are not in any way linked to base rate......what the power companies charge is not in any way linked to wholesale energy prices.... ;)

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The issuer of Money has only one tool.

The cost of money.

If they cant lower rates, all they can do is issue money for free thereby doing the work of lowering rates through inflation.

The real issue here is that the housing market is now 100% financialised....the idea of raising rates to control the economy was to reduce spending and encourage saving...that tool broke when the housing market was financialised, as the stimulus of lowering rates so Industry could borrow was sucked into affordability in mortgages...save £100 in borrowing costs didnt mean an extra £100 in the economy any more, it meant another £100 per month on the mortgage payments.

Idiots...broke the tool and now say it wont be used....mainly because it isnt one they can use...their theory was wrong, this led to mismangement and this led to the collapse...which we are still going through by the way...and they have even ballsed this up, as at the time of 2008 crunch, what they needed was to buy time, a lot of it, to trade through....no...they started on that tack, and then they decided it wasnt a bubble any more and went for MORE credit growth.

Had their chance...blew it.

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Mervin King did actually seem to do stuff sometimes. But Mark Carney's Bank of England just talk about their tools and about what they could do if they wanted to. It would be good if there was some way of calling their bluff.

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Mervin King did actually seem to do stuff sometimes. But Mark Carney's Bank of England just talk about their tools and about what they could do if they wanted to. It would be good if there was some way of calling their bluff.

havent you heard of "forward guidance"

This means they talk a lot in the hope you can make out what they are going to do next.

In reality...its BS....Id like my guide to tell me what they are going to do next in plain English, otherwise its BS.

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To be fair, the logic is completely correct.

The market value of one single commodity should not be a driver for setting the central bank's base rate.

The damage is separate and has already happened, that is to say that the market value of one single commodity is so fundamental to the smooth functioning of the nation's economic system. The fact that this is true is evidenced by the suggestion that one might consider using it's market value as a key factor in setting central bank base rates.

Why aren't there different interest rates for different types of debt? Seems absurd that there isn't.

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Just a question.....?.but why should BofE base Rate be in any way linked to the interest rates banks who are in business to make money charge for their lending?......payday loans are not in any way linked to base rate......what the power companies charge is not in any way linked to wholesale energy prices.... ;)

Short answer, open market operations (OMO)

This FT piece from Willem Buiter's maverecon blog seems to cover just about every question you wish you'd never asked. By analogy if the Bank set up as a payday loan company and started making cheap loans, then the payday loan rates would be linked to the Bank's payday loan policy rate. They'd make cheap loans when they wanted to drive rates down, and express a willingness to borrow at high rates from the payday loan companies' creditors (hence pushing up the payday loan companies' interests costs and thus pushing up the rates they charge to their customer) when they wanted rates to rise.

In fact I suppose that exactly that is happening right now! It's just that the payday loan interest rate is dominated not by the lender's cost of borrowing but by the credit risk associated with the loan they make, so the application of BoE policy gets slightly lost in the noise, but in principle and in practice, if the policy rate was higher, the cost of a payday loan would also be higher.

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Can anyone name a single thing the BoE has done in the last 15 years to cool the housing market?

depends what you mean by the housing market...for the BoEs charges, it is lending...they have done a lot to help lending, bail out the feckless lenders and buying Government debt to prevent mass public sector layoffs.

So what was a HOT market for lending, has been cooled and made safe....for lenders.

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Can anyone name a single thing the BoE has done in the last 15 years to cool the housing market?

Bank of England cuts mortgage support to avoid housing bubble

Though to be fair the picture presented by the Bank's own press release is a little different...

Although the growth in household loan volumes remains modest, activity in the housing market is picking up and house price inflation appears to be gaining momentum. As a result there is no longer a need for the FLS to provide further broad support to household lending. The changes we are making have no implications for HM Government’s Help to Buy scheme, which is designed to address the specific issue of access to mortgages for borrowers without large deposits, unlike the FLS which was designed to boost lending more generally.

Source: News Release - Bank of England and HM Treasury re-focus the Funding for Lending Scheme to support business lending in 2014, (emphasis added).

As usually argued here, the Bank of England's principal role is probably not the inflation targeting of the Monetary Policy Committee, it is probably preventing the private banks blowing themselves up. Accordingly, once HPI has happened (and it certainly has) any correcting price movement downwards are when seen from the hallowed halls of Threadneedle Street essentially a bad thing, whereas modest HPI is a good thing.

For my money, we still don't have anyone with eyes on the horizon for the little guy. The FCA may act in some small way to prevent future excesses being as grotesque as the credit underwriting practices of the 2003-2007 boom phase, but there was a lot of really sh!tty lending that is still with us, still burdening households and still anchoring price expectations.

IMO for all their preaching about controlling CPI expectations, we have a very fragile and inequitable market for housing because HPI expectations are so embedded.

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I'd call that action to slow down the heating rather than cooling. LTV caps, LTI caps, IO ban, etc. would be cooling actions a regulator could introduce.

I'd agree.

I would argue Mortgage Market Review and the concomitant de facto end of high LTV interest only lending to median households will exert a long term pressure to anchor houses bought with mortgages to 2003 prices, with the caveat that mortgage interest rates were a little higher in 2003 than they are today (about 5.5% versus about 4.4% according to the Bank of England's IUMTLMV series for average SVRs).

Will be interesting to see when 100 bps and change that the 10 year gilt put on over last summer (and has held) starts to bleed through into rising SVRs.

I find it rather difficult to believe the CML's insistence that "Axing Funding for Lending not a threat to the market", as per the linked Mortgage Strategy piece. I'll buy the idea that the the wholesale markets are functioning again, relative to their behaviour in the shadow of the Lehman insolvency, but the FCA's December 2013 Mortgage Lending & Administration Return (MLAR) statistics suggest that securitisation is still declining as a share of outstanding mortgages, and thus the pre-2007 spigot of cheap money remains, if not switched off entirely, very much reduced and thus unable to make the weather in the way that it did between 2003-ish and the 2008 crash.

The value of securitised amounts outstanding continued the recent declining trend, reducing by a further 4.2% in Q3 2013 to £111 billion. Unsecuritised amounts outstanding, however, continued to increase to £1,123 billion in Q3 2013. Consequently, the proportion of overall amounts outstanding accounted for by securitised balances decreased for the fourth quarter in succession to 9.0%, the lowest since the series began in 2007.

Source: MLAR statistics December 2013 - commentary

It certainly looks to me (again using the Bank of England data) that 5-year fixes have bottomed out and that although 2-year fixes are still falling, I can't imagine that they have a great deal further to fall and may have bottomed out too. Further, I assume (making the inference based on the fact that they showed up at the same time) that the comedy low rates we're presently seeing on fixes are solely an FLS artefact.

Hence, the stage must be set for SVRs to at the very least continue their very slow rise (see my August 2012 post in the Charts thread - this trend still rolls on ;) ) or very possibly pick up the pace a little, depending on the continuing adventures of China and the Fed.

IMO even when the future path of interest rates is fairly clear, it is never priced into UK house prices, because one of the (blindingly obvious) conclusions of the Miles report is IMO sound - when considered in aggregate as a big dumb lump, UK private households do not consider possible interest rate movements when deciding whether or not they can afford a given price for a house.

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They say they can't do anything to control house prices, yet I seem to recall when house prices were falling the BoE and government reacted immediately to shore up prices by printing money, lowering interest rates to below zero , pushing up inflation, paying peoples' mortgages, outlawing repossession, nationalising banks, subsidising BTL purchases, paying the builders to keep land undeveloped, paying 20% deposits for buyers and generally flooding the mortgage market with cheap money.

It seems just a bit disingenuous to suggest that "nothing can be done".......................given the massive state intervention already deployed to rig the market. The truth of course is that this massive state intervention is now the very reason why nothing can be done.

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