Interest Rates

[Mr Joe]

The relatively low base rates over the last 3/4 years have definitely been a factor in causing HPI.

In my experience most people have become comfortable with cheaper credit. In fact many of my work colleagues, family and friends have come to the conclusion low credit rates are here to stay for good.

There is so much debate about 6 or 7% base rates causing panic on the streets etc. Maybe this sentiment is why so many believe that low rates of credit are the future?

Just how exposed are we as a nation to the comfort of cheap credit? I believe many if not the majority would manage without financial disaster.

Mr Joe.

[spline]

We can apply an “affordability” type argument to estimate the sustainable P/E for any given interest rate; at 4.5% the baseline P/E would be about 4.4, and at 7% about 3.5, so a rise in rates from 4.5% to 7% would by itself wipe out 21% of average house value, never mind any other effects that might also be happening at the same time.

[New Darker Law]

I agree that most would manage without financial disaster.

But the real question is would they manage without a job?

If the recession kicks off, then jobs will be dessimated. Repayments will not be met and there will be a great many financial disasters.

The huge increase in CCJs, bankruptcies and repossessions suggest people will not manage without financial disaster when their job goes.

NDL

[Unexpected]

Most might manage without financial disaster, but if only a few percent became forced sellers there would be a major HPC.

[erd]

The relatively low base rates over the last 3/4 years have definitely been a factor in causing HPI.

In my experience most people have become comfortable with cheaper credit. In fact many of my work colleagues, family and friends have come to the conclusion low credit rates are here to stay for good.

There is so much debate about 6 or 7% base rates causing panic on the streets etc. Maybe this sentiment is why so many believe that low rates of credit are the future?

Just how exposed are we as a nation to the comfort of cheap credit? I believe many if not the majority would manage without financial disaster.

Mr Joe.

Given the financial state our countries leader is in, is it any surprise that they are not raising rates dispite all the signs pointing to that it is needed and has been for some time?

[Cheston Pelvis]

In response to Mr Joe:

When the Bank of England upped the base rate to 4.75% Mr & Mrs UK curbed their spending, much to the detriment of the retail and manufacturing industries. If we were to return rates to a historic norm I would expect a significantly higher fallout, likely resulting in a lengthy recession while the ramifications of such an action are ironed out.

In my opinion as a consequence of just how indebted we are the Bank of England are dreading a raise in the base rate. However they now have to weigh up the pros and cons of staying put or upping the rate. To me, at it's most melodramatic, it's a case of trashing the pound or trashing the economy.

I'm beginning to think they'd rather trash the pound and hence slacken the leash on inflation. It would be an easier bullet to bite for New Labour than a return to high unemployment.

This could be the wine talking though!

[RichM]

Low IRs are great, as long as you don't whack up your debt too high. If people just saw low IRs as an easy way of servicing their debt we'd be fine, instead it's become time to fill your boots, massive asset inflation etc etc.

The problem is now, that debt will not be eroded by inflation, well not very quickly anyway. It's a one-off trick that can't be repeated; doubling debt again over the few years will be unsustainable, even at today's low IRs.

Sadly, our economy will have to run to stand still; we've become accustomed to growth of 2-3%, with debt growing at 10% and MEW contributing about 10% of consumer spending. Once we can no longer stomach taking on even more debt, the economy is screwed. Big time.

All that talk of recession and unemployment... well, it's hardly going to bring about more HPI, that's for sure.

[Cheston Pelvis]

It's a one-off trick that can't be repeated

I cannot agree more. I've recently tried pointing out this little gem (and what it means) to my colleagues with limited success - and this within the back office of a finance-related firm, no less!

[RichM]

I cannot agree more. I've recently tried pointing out this little gem (and what it means) to my colleagues with limited success - and this within the back office of a finance-related firm, no less!

Bless 'em

[nodumsunreader]

The relatively low base rates over the last 3/4 years have definitely been a factor in causing HPI.

In my experience most people have become comfortable with cheaper credit. In fact many of my work colleagues, family and friends have come to the conclusion low credit rates are here to stay for good.

There is so much debate about 6 or 7% base rates causing panic on the streets etc. Maybe this sentiment is why so many believe that low rates of credit are the future?

Just how exposed are we as a nation to the comfort of cheap credit? I believe many if not the majority would manage without financial disaster.

Mr Joe.

With the falling pound last week, it looks as though the markets have factored in next months rate cut already.

[busta move]

With the falling pound last week, it looks as though the markets have factored in next months rate cut already.

Seems that Interest rates are on the rise globally. Will this have any effect on our interest rates? Maybe not directly but it must be a sign that there are global pressures for upwards IRs. Even Japan are starting to put rates up!

[Smurf1976]

With the falling pound last week, it looks as though the markets have factored in next months rate cut already.

You mean the next US interest rate rise has been factored in I assume?

[Guest Winners and Losers]

With the falling pound last week, it looks as though the markets have factored in next months rate cut already.

If this is the case, why has the 10 year fixed just been raised. Surely they should be cutting it?

[I Told You So]

I suggest you check out what the UK interest rate futures market is saying.

I'll give you a clue - interest rate rise definite by Dec, pretty much a done deal by Sept and borderline in Jun.

Forget about cuts we are heading into an upward cycle.

[Realistbear]

India tightening now:

http://in.today.reuters.com/news/newsArtic...ia-240378-1.xml

NEW DELHI (Reuters) - Finance Minister Palaniappan Chidambaram said on Monday interest rates are hardening during a debate on the union budget in parliament.

"The bank rate today is at 6 percent. Reverse repo is at 6.5 percent ... interest rates are hardening," Chidambaram told parliament.

How long can Gordon hold out hope that IR will go against the world trend? Will he allow sterling to collapse?

[Casual Observer]

With the falling pound last week, it looks as though the markets have factored in next months rate cut already.

That's a rather topsy-turvey way to look at it! Pound fell because IRs are low compared to US. That dose not point to an IR reduction in the UK!!

[bubbleturbo]

DumSunReader,

Why are the futures markets showing a rise then?

Why are mortgage rates drifting upwards from what they were a few weeks ago. Interesting they have drifted up factoring in a 0.25 rise.

I can hear the flow reducing from the taps.

[Mr Joe]

Interest rates for me is the key factor in relation to affordability

I for one am more than happy to watch the next 18 or so MPC decisions. If rates fall to 3% or even stay where they are its just fuel for the fire. The fact is house prices are just not affordable for me and many others.

Great if property became affordable and we could maintain historically low levels of cheap credit. The problem is low rates mean higher property prices.

Mr Joe.

[karhu]

With the falling pound last week, it looks as though the markets have factored in next months rate cut already.

You need a good pounding. Cable up 0.25% today.