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Realistbear

Interest Rate Rise Seems Inevitable

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http://icwales.icnetwork.co.uk/0300busines...-name_page.html

Interest rate rise seems inevitable

May 7 2006

Wales on Sunday

ALTHOUGH the Bank of England left interest rates unchanged this week for the ninth successive month, the idea is gaining ground that the next move in rates could be up rather than down.
If the era of low rates draws to a close,
Britain will eventually follow Europe, Japan, China and US as rates rise across the global economy.
The US base rate rise from 1% in June 2004 to perhaps 5% in the next few weeks shows how lightly we have escaped so far.
In the States, new Federal Reserve chairman Ben Bernanke is starting shakily.
In Britain, a summer slide in sterling possibly triggered by our huge trade deficit could push up prices of imports and force the Bank to lift rates to control inflation.
*
Says Errol Francis, UK Equities portfolio manager at fund manager Credit Suisse: "Data released in the past few weeks suggests there is now a greater likelihood the Bank of England will raise interest rates later this year."
Pressure on rates here has intensified as borrowers have grabbed fixed-rate mortgages made cheaper by fierce competition between lenders.

*Sterling is overvalued and due for a sharp correction IMO

Edited by Realistbear

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A rate rise would be a welcome kick up the backside for the property speculators. Have you noticed how elastic the market it is? Small rate rises and falls produce larger proportionate change in the market. When it rose to 4.75% last year (not a particularly dramatic rise) the market fell into a slump. It's only the quarter point fall that has saved the market recently. I predict that when rates go up again (even only slightly) we shall see the tumble we had last year return. I think "sheep" is a great analogy because they flock to far either way (greater elasticity).

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I predict that when rates go up again (even only slightly) we shall see the tumble we had last year return.

That would be very nice - but I think that the property market works on the rules of Eternal Optimism so there will still be a lot of BTLers who still won't sell because "they're in it for the long term". :rolleyes:

It was really the rise from 3.5% - 4.75% that really started to kick things off - one rate rise from 4.5% to 4.75% may not do much, but I think that if we cross 5% then things are going to start getting very interesting.

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if we cross 5%

IF? I'd say we're going to around 7% over the next couple of years. How do you feel about that?

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Wales on Sunday?

Perhaps I'll take notice when the Twickenham and Richmond Observer starts calling time on HPI due to global interest rate trends, but not Wales on Sunday.

In the meantime, scour away. The internet is a big thing.

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IF? I'd say we're going to around 7% over the next couple of years. How do you feel about that?

I think it's a distinct possibility.

between that and the ridiculous amount of tax rises we have seen there is enough scope for "inefficiency improvements" when the de-flationary bit kicks in at about 2012!!!!

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I'll believe it when I see it ... other than that I'd feel fairly fine about it. :)

I've never seen so many people be so skeptical about an economic parameter returning to its long term mean value. A lot can happen in a year and partcularly in the current climate.

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That would be very nice - but I think that the property market works on the rules of Eternal Optimism so there will still be a lot of BTLers who still won't sell because "they're in it for the long term". :rolleyes:

It was really the rise from 3.5% - 4.75% that really started to kick things off - one rate rise from 4.5% to 4.75% may not do much, but I think that if we cross 5% then things are going to start getting very interesting.

I agree, and even a 1.25% rise is relatively small. Only an idiot would tell you that the base rate will remain this low forever. the 5% mark will be a tough psychological barrier for many borrowers to face. I agree with you, once we break that 5% mark, we will get our crash. That's only 2 rate rises away, the global economy will force the MPC to go way above 5% too.

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I agree, and even a 1.25% rise is relatively small. Only an idiot would tell you that the base rate will remain this low forever. the 5% mark will be a tough psychological barrier for many borrowers to face. I agree with you, once we break that 5% mark, we will get our crash. That's only 2 rate rises away, the global economy will force the MPC to go way above 5% too.

Even small interest rate changes affect the cutoff point where it is cheaper to rent than to buy. If it costs 130K to buy a house, then at an interest rate of 4.5%, an interest only mortgage would be £487.50 per month. If rates go up to 4.75%, then the cost would be £514.58 a month. Take the rate to 5%, and it's £541.66 a month. Go to 6% and it's £650 per month. That's a massive change. Of course, realistic mortgage interest rates are going to be above the base rate (apart from introductory periods). So the changes are even more pronounced. While only a proportion of the population will be clued up enough to work out when it's cheaper to rent than buy, it should make a small difference to the demand for houses.

Billy Shears

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I've never seen so many people be so skeptical about an economic parameter returning to its long term mean value.

I would call my current mood as being one of cautious optimism.

The Gold markets are continuing to show that people are voting for "no confidence" in the dollar and the Fed's monetary policy.

The US Federal Reserve is one to watch - the mere suggestion of a rate-hiking pause the other day sent the dollar down considerably - which suggests to me that the Fed need to keep hiking and hiking to try and get some confidence back in the dollar, perhaps a lot further than what they would have liked.

How it seems to me is this :

In 2001 the Fed panicked and lowered Interest Rates to far below sensible levels in order to keep the economy out of recession. The UK followed and creating the housing bubble.

This we know already - but in coming out of this "undershoot" in rates, maybe the Fed will be forced to "pay" by the markets for such a mistake in monetary policy by having to do a corresponding "overshoot".

This may be what undoes the US economy and all other dependent Anglo-Saxon economies.

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Guest Charlie The Tramp

I've never seen so many people be so skeptical about an economic parameter returning to its long term mean value. A lot can happen in a year and partcularly in the current climate.

Well I was looking at a rate of 5.25% beginning of 2005 ( remember TTRTR :D ) as things appear to be two years behind I will now go for 5.25% Spring of 2007 as a definite, unless there is a serious global shock beforehand. ;)

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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