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House Price Crash Forum

Interest only debt jubilee


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I've deliberately started this in the troll forum because it is unformed and I'm hoping to argue with myself (and any other idiots that might be about).


Mortgage rates in the US are rising. 

When interest rates go down, some borrowers switch their deal, thus terminating their current mortgage. When rates go up, they tend to hold on. The holder of the bond therefore finds themselves holding more bonds than expected. Some of these investors will choose to sell, thus increasing the supply of investment products in the market. That puts downward pressure on the price of such bonds and therefore upward pressure on rates.

It's potentially a feedback loop.


QE was introduced to counter a deflationary collapse in the bond markets. It was very very successful.

It looked like an inflation of the money supply, but I'm not sure that it was. 

Can they do the same thing again?


Last time, they were mainly buying gilts and other government bonds. 

If they start buying more mortgage bonds, there is a risk 


EDIT: This was the bit that was clear to me before I started posting.

(Unformed thoughts)

Moral hazard.


So they ban interest only mortgages now, whilst planning to make the existing interest only borrowers whole in the future. They will present it as riding to the rescue, but its planned. Or maybe they will make Lloyds whole when they write off the loan and allow the former borrowers to remain in the house and pay rent.

Edited by Timm
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