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walker127

Interest Rates Have To Be The Trigger

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Talking to a two of my mates as work.

One guy aged about 55 has just bought a house in Scotland for 325K with a mortgage while his other house is for sale down in Cheshire, on the market for 280K. It has been on the market for 4 months now with very few viewings but he won't lower the price because that is what the EA said it is worth. I showed him this web site and he reckons there won't be a crash unless interest rates go up like they did in the early 90's. If they went up, he said he would have to drop the price to sell it sharpish to pay off the mortgage on his current home, but he is willing to hang on if nothing changes.

Guy number 2 has a muppet of a son. His son is 26 and got into buying property 4 years ago. He buys a flat, rents it out, waits for the price to go up and then MEW's and buys another. He has 6 now and his dad reckons he is worth over 1 million, but all 6 are leveraged BTL. I showed him this site and asked what his son would do in a crash. He said he is in it for the long term so a price crash wouldn't bother him, however if interest rates were to go up such that it exceeded the rent then he would have to sell at whatever price he could. He admitted that would be a disaster and agreed his son might have miscalculated on this one.

So there you have it, 2 different guys, different interests in the property market and both said they would get out at any cost if interest rates go up.

All we have to do now is wait.

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Talking to a two of my mates as work.

One guy aged about 55 has just bought a house in Scotland for 325K with a mortgage while his other house is for sale down in Cheshire, on the market for 280K. It has been on the market for 4 months now with very few viewings but he won't lower the price because that is what the EA said it is worth. I showed him this web site and he reckons there won't be a crash unless interest rates go up like they did in the early 90's. If they went up, he said he would have to drop the price to sell it sharpish to pay off the mortgage on his current home, but he is willing to hang on if nothing changes.

Guy number 2 has a muppet of a son. His son is 26 and got into buying property 4 years ago. He buys a flat, rents it out, waits for the price to go up and then MEW's and buys another. He has 6 now and his dad reckons he is worth over 1 million, but all 6 are leveraged BTL. I showed him this site and asked what his son would do in a crash. He said he is in it for the long term so a price crash wouldn't bother him, however if interest rates were to go up such that it exceeded the rent then he would have to sell at whatever price he could. He admitted that would be a disaster and agreed his son might have miscalculated on this one.

So there you have it, 2 different guys, different interests in the property market and both said they would get out at any cost if interest rates go up.

All we have to do now is wait.

I agree that interest rates (or possibly a sharp rise in unemployment) will be the trigger for a HPC...

But what the hell is going to be the trigger to increase interest rates to around 7-8%??

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Guest Riser

Expert on Working lunch asked when he expected rates to go UP, he said in the next eight weeks.

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Inflation continues to grow even after two 0.25% rises ?

A few crappy 0.25% interest raises to keep inflation in line doesn't cut it - can you suggest something else to increase interest rates by at least 2%

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Guest The_Oldie

A few crappy 0.25% interest raises to keep inflation in line doesn't cut it - can you suggest something else to increase interest rates by at least 2%

Surely any rise in rates will affect sentiment. For the last year all we've heard is predictions of rate cuts, now the tide seems to have turned.

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Surely any rise in rates will affect sentiment. For the last year all we've heard is predictions of rate cuts, now the tide seems to have turned.

will it help? sure but is it going to make the difference between stagnation and a HPC - i don't think so (love to but i'd be kidding myself)

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A few crappy 0.25% interest raises to keep inflation in line doesn't cut it - can you suggest something else to increase interest rates by at least 2%

After a "few" 0.25% increases in US rates they have gone from 1% to 5% in just over a year!

_41393183_us_rates_april_5_00_gra203.gif

What is there to say this could not happen in the UK?

We could be looking at 7.5% rates after just a year of 0.25% increases!

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Sanctions against Iran drive oil nearer $100

Other commodities continue higher

China starts to revalue its currency

Inflation kicks in, no amount of fiddling the cpi figure can hide it, the BOE does what it is supposed to do and raises base rate several times in a row in 0.25 or 0.5% steps.

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Talking to a two of my mates as work.

One guy aged about 55 has just bought a house in Scotland for 325K with a mortgage while his other house is for sale down in Cheshire, on the market for 280K. It has been on the market for 4 months now with very few viewings but he won't lower the price because that is what the EA said it is worth. I showed him this web site and he reckons there won't be a crash unless interest rates go up like they did in the early 90's. If they went up, he said he would have to drop the price to sell it sharpish to pay off the mortgage on his current home, but he is willing to hang on if nothing changes.

Guy number 2 has a muppet of a son. His son is 26 and got into buying property 4 years ago. He buys a flat, rents it out, waits for the price to go up and then MEW's and buys another. He has 6 now and his dad reckons he is worth over 1 million, but all 6 are leveraged BTL. I showed him this site and asked what his son would do in a crash. He said he is in it for the long term so a price crash wouldn't bother him, however if interest rates were to go up such that it exceeded the rent then he would have to sell at whatever price he could. He admitted that would be a disaster and agreed his son might have miscalculated on this one.

So there you have it, 2 different guys, different interests in the property market and both said they would get out at any cost if interest rates go up.

All we have to do now is wait.

Interesting post.

I believe however, that rising unemployment and credit squeeze will result in a minor-moderate HPC but as your examples show for a full blown HPC we really do need to have forced sellers and for that we really need IR rises.

I would say though that US rates have gone from 1% to 5% in under 2 years to contorl inflation and it isn't over yet in the US. Inflation has been stored up over many years now with companies not passing on costs but when they do (it's more when than if) then inflation here could rocket.

IRs in the UK could be 6%+ in 2 years time with no problem, about the time that all the nice 2-3 year fixed rates finish. If IRs are 6%+ in 2 years time that will be the time of reckoning

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sounds familiar, one of the contractors has bought a house with a bridging loan, he is waiting on the sale of his flat. Sounds very 1980s.

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I agree that interest rates (or possibly a sharp rise in unemployment) will be the trigger for a HPC...

But what the hell is going to be the trigger to increase interest rates to around 7-8%??

7-8% in 2 years could happen. All depends on what inflation does.

Look at US, IRs from 1% to 5% and still not controlling inflation!

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After a "few" 0.25% increases in US rates they have gone from 1% to 5% in just over a year!

What is there to say this could not happen in the UK?

We could be looking at 7.5% rates after just a year of 0.25% increases!

Sure just explain to me why the BOE would decide to kock up interest rates by 3% when it looks like a 0.25% hike will keep inflation in check.

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Surely any rise in rates will affect sentiment. For the last year all we've heard is predictions of rate cuts, now the tide seems to have turned.

Barclays agree with you:

http://today.reuters.com/investing/finance...RKETS-BONDS.XML

"Confidence is starting to take on more and more of important role now that we're so data dependent," said William John, co-head of government debt trading at Barclays.

Job losses, fear or IR hikes, bad result for sitting government, debt stories hitting the press daily all adds up to bearish sentiment. It will not take more than one hike of .25% to quicken the pace of decline. BTW the FT article this morning should shake LONdon sheeple up.

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Surely any rise in rates will affect sentiment. For the last year all we've heard is predictions of rate cuts, now the tide seems to have turned.

A fair point, but I am no longer sure that we can rely on a change in sentiment alone. There was a feeling last year that the tide of bearish news (at the time) and the month by month falls would have been enough to persuade people to head for the exits. It didn't really happen.

I think the BTL set will hang on until they feel real pain on a monthly basis (in terms of costs rather than perceived value).

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Guest Fiddlesticks

So there you have it, 2 different guys, different interests in the property market and both said they would get out at any cost if interest rates go up.

All we have to do now is wait.

Unfortunately the BoE seems to be on their side, and we could be waiting a very long time for any significant rise:

FWIW here are the interest rates the BOE used to calculate that inflation would be on target

2Q06	4.53Q06	4.54Q06	4.61Q07	4.62Q07	4.73Q07	4.84Q07	4.81Q08	4.92Q08	4.93Q08	4.94Q08	4.91Q09	4.82Q09	4.8

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Sure just explain to me why the BOE would decide to kock up interest rates by 3% when it looks like a 0.25% hike will keep inflation in check.

That is the point, at the moment it looks like inflation can be controlled with a small increase. However, things change over time. A couple of months ago people thought that there was going to be a lowering of rates because inflation had undershot 2% at that time. Therefore, it is possible that inflation may continue to rise due to effects outside of the UK's control and interest rates will have to follow like they have done in the US.

If you had been in the US 16 months ago, what would you have said to somebody who would have suggested that rates would be 5 times as high in just over a year?

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A few crappy 0.25% interest raises to keep inflation in line doesn't cut it - can you suggest something else to increase interest rates by at least 2%

All depends on what inflation does. A few crappy interest rate rises might not be enough. Especially as the BoE seems determined to put it off until it is too late so the rises will have to be more and faster.

Sure just explain to me why the BOE would decide to kock up interest rates by 3% when it looks like a 0.25% hike will keep inflation in check.

Because the BoE inflation projection may very well be unrealistic. In this weeks report they still think inflation will be below or at 2% target in next 2 years. Read the fine detail in this report and you will see that there are a lot of wild assumptions made.

It's all about inflation now my friend.

But even though the latest inflation report has essentially crushed any hopes of a rate cut this year, is the Bank still being too optimistic?

“The inflation report describes a benign central view of steady growth with inflation remaining close to the target,” said governor Mervyn King.

That’s all very well. But as the Governor admits, the risks to that benign forecast “are many and varied. In particular, there are still risks on the downside associated with the impact of strong energy and import price inflation on real disposable incomes and consumer spending.

In other words, high oil prices are still squeezing consumers’ pockets as rising energy bills and petrol prices bite deep. That's likely to act as a drag on economic growth. But the problem is that the same high oil prices also drive up inflation, which makes it impossible for the Bank to cut interest rates to ease the consumers’ pain.

And the Bank is right to be worried about inflation. It doesn’t yet believe that “second-round effects” – like demands for higher wages – are being seen. But in April, a survey by the Bank showed that consumers have started to notice the squeeze on their earnings. Households now expect inflation to rise to 2.7% over the next 12 months – that’s the highest expectation on record.

And energy costs are also making companies wince. Greggs said that its profits in the year to date remain “materially below” last year’s. Underlying sales – that is, sales at stores open for longer than a year – were flat in the 18 weeks to May 6. Shares in the group fell 2% to £36.23.

The bakery chain, which sells more than one hundred million sausage rolls a year, managed to push through price hikes of 3% during 2005 - and it looks like there will be more to come. Companies can absorb the pain of added costs for so long, but if sales stay flat and costs continue to rise, the only way to improve profits is to raise prices. And that means higher inflation.

And of course, that other great indicator of inflation - the gold price - is screaming red. Gold broke through $700 an ounce recently, equivalent to more than £375 an ounce in sterling. As Brian Durrant of the Fleet Street Letter points out further down this email, the message you should take from the gold price is clear - "inflation is about to take off".

The Bank still seems to be operating on the assumption that the current high price of oil is temporary. The trouble is, that’s exactly what it was thinking last year as well – and yet oil prices are now higher than at almost any point during 2005.

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If you had been in the US 16 months ago, what would you have said to somebody who would have suggested that rates would be 5 times as high in just over a year?

You wouldn't have seen it coming and that's my point - there is no specific event in the horizon/foreseeable future which is going to trigger interest rates to jump up to 7-8%!!!

There are some foreseeable inflationary pressures such as imported inflation caused by rising production costs in the far east caused by commodity prices & changing exchange rates - so far I'm not convinced they will be the cause of 7-& interest rates.

That's not to say interest rate rises to 7-8% are impossible, but your belief that interest rates are going to jump to 7-8% is pure speculation. If you were to toss a coin and call heads and keep on tossing that coin you're bound to get it right eventually.

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Unfortunately the BoE seems to be on their side, and we could be waiting a very long time for any significant rise:

These figures are based on current inflation projections which are very likely wrong.

You wouldn't have seen it coming and that's my point - there is no specific event in the horizon/foreseeable future which is going to trigger interest rates to jump up to 7-8%!!!

There are some foreseeable inflationary pressures such as imported inflation caused by rising production costs in the far east caused by commodity prices & changing exchange rates - so far I'm not convinced they will be the cause of 7-& interest rates.

That's not to say interest rate rises to 7-8% are impossible, but your belief that interest rates are going to jump to 7-8% is pure speculation. If you were to toss a coin and call heads and keep on tossing that coin you're bound to get it right eventually.

Are you choosing to ignore my posts above?

That’s all very well. But as the Governor admits, the risks to that benign forecast “are many and varied. In particular, there are still risks on the downside associated with the impact of strong energy and import price inflation on real disposable incomes and consumer spending

Even the gov acknowledges that there are huge inflationnary risks

Why is 4.5% - 7% so hard to comprehend??

You are a good example to us all - the majority have been buying up houses at 10X earnings thinking that rates will never go back up to the average - the blo*dy average!!!!!

There are some foreseeable inflationary pressures such as imported inflation caused by rising production costs in the far east caused by commodity prices & changing exchange rates - so far I'm not convinced they will be the cause of 7-& interest rates.

Services inflation (hair cuts, private school fees etc) is huge, so is council tax, fuel etc.

It is only import inflation that has kept inflation low over the last 10 years.

In the BoE report it stated that import inflation was the highest in 5 years!!!

This is extremely relevant because without import inflation keeping a lid on inflation then inflation could easily exceed 2%

The costs around the world have gone up for everyone. If imported goods start to go up and companies have to start passing on price increases then inflation at 2% will be a thing of the past. That's before 2nd round inflation pressures from wage rises etc - which the BoE acknowledge haven't even started yet!

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That's not to say interest rate rises to 7-8% are impossible, but your belief that interest rates are going to jump to 7-8% is pure speculation. If you were to toss a coin and call heads and keep on tossing that coin you're bound to get it right eventually.

I think we are both arguing at cross-purposes.

I thought you were denying the possibility of rates at 7-8%. You thought I was insisting that they would rise to 7-8%. Neither was true, as it turns out.

I think that rates of 5-6% in the short-term is most likely at the moment but that is not to say that they could not continue rising like in the US in the long-term.

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I thought imported inflation would only really kick in if £ drops against the exporting currency.

Since £ has risen against the $, $ denominated imports are actually cheaper in £ terms.

Hence UK reported inflation should fall since the cost of imports has fallen?

Same with the Euro......

All things being equal, therefore less need to raise the rates?

Of course UK manufacturing for export will take a battering but it has been in a death rattle for as long as I can remember.

;)

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I think we are both arguing at cross-purposes.

Agreed :lol:

I think that rates of 5-6% in the short-term is most likely at the moment but that is not to say that they could not continue rising like in the US in the long-term.

Do you think a rate of 5-6% will cause a HPC?

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I thought imported inflation would only really kick in if £ drops against the exporting currency.

Since £ has risen against the $, $ denominated imports are actually cheaper in £ terms.

Hence UK reported inflation should fall since the cost of imports has fallen?

Same with the Euro......

All things being equal, therefore less need to raise the rates?

Of course UK manufacturing for export will take a battering but it has been in a death rattle for as long as I can remember.

;)

Read the BoE report - import inflation highest in 5 yrs

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Guest Charlie The Tramp

Agreed :lol:

Do you think a rate of 5-6% will cause a HPC?

That is the $64k question, but it will be the time when the general populace realise the good times are finally over. ;)

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  • 302 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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