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Guest Charlie The Tramp

Darling Under Pressure With 6% This Year

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Guest Charlie The Tramp
By Dan Atkinson Financial Mail.

New Chancellor Alistair Darling faces his first big test this week with the Bank Of England almost certain to raise interest rates by another quarter point to the highest in more than six years. As the Bank piles on the agony for millions of homeowners and borrowers, Darling`s reaction will be scrutinised by the City and overseas financial markets for any sign of weakening of the iron-hand anti inflationary credentials of predecessor Gordon Brown.

With house prices continuing to roar ahead despite three rate rises t0 5.5 per cent in the benchmark rate since last August, the betting is on another rise at the Monetary Policy Committee meeting on Thursday.

Worst still for the heavily indebted millions whose borrowing helped fuel the economy during Brown`s ten-year stint at the Treasury, the financial community now believes 5.75 per cent may not mark the peak.

Last week, the money market was signalling six per cent by the end of the year, the highest since 2001. The June house-price index from Nationwide showed property price inflation to 11.1 per cent a year from 10.3 per cent in the year to May.

The M4 measure of money supply, growing at more than 13 per cent a year, is another cause for concern. Professor Peter Spencer of York University, the economist to the independent Item Club, said: I think rates have to go up until M4 growth is reined back to single figures. It is very hard to be confident that six per cent is the highest that rates will go. Underlying the economic buoyancy are two surveys due this week from purchasing managers in manufacturing and service industries. Ross Walker, economist at Royal Bank of Scotland, said: Both are at such levels that even a small decline would not be significant. Manufacturing is doing surprisingly well.

On Wednesday, the Bank will unveil figures for mortgage equity withdrawal in the first quarter. Walker said: People are using equity withdrawal to cushion themselves from the effect of the slowdown and to allow to keep on spending.

British business went from prey to predator in the first half of this year, reversing the trend of foreign companies buying UK groups. According to mergers and acquisitions data company Zephyr, they snapped up foreign companies worth £110 billion, up from £33 billion in the same period last year, while foreign groups bought UK business worth £48 billion down from £62 billion.

What does this all mean, the mortgage rate will be hitting 8.5 per cent some time next year ?

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What does this all mean, the mortgage rate will be hitting 8.5 per cent some time next year ?

I am inclined to think not. The screw is all ready busy twirling in a clockwise direction as the banks reign in credit. The US hit the wall at far lower IR. It was the sub-prime collapse that gave impetus to GC2 in the US.

IMO, its game over for Gordon's miracle of never ending HPI.

6% will do, IMO. Or, perhaps any number Merv likes to conjure because if there is no credit to buy houses even 1% looks expensive.

Edited by Realistbear

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Guest Charlie The Tramp
I am inclined to think not.

If mortgage lending falls dramatically as rates rise the lenders will revert back to the old 2% on the base rate to keep their profits up.

I will bet come Q1 next year inflation will still be a serious problem and climbing Globally, hence you will only need a 6.5% base rate to get the 8.5% mortgage rate. Seen it, been there, and in the past no problem, as we borrowed sensibly, not as we see today. ;)

The £150k mortgage over 25 years.

Monthly repayment at 8.5%

£1221.39

(Interest only)

£1062.50

But be careful, at 12% it will be:

£1593.74

(Interest only)

£1500

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Can someone tell me why a lawyer is in charge of the economy? Maybe my logic is too simplistic, but I would have thought that an economist would be in charge. Or is Alistair Darling just a puppet (as well as a muppet)?

http://en.wikipedia.org/wiki/Alistair_Darling

How many MPs are economists? You would be hard-pressed, I guess, to find more than a couple.

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Guest Charlie The Tramp
Can someone tell me why a lawyer is in charge of the economy?

Well firstly as a Lawyer he will depend on the Treasury Mandarins to guide him, and as they set the rates before the BoE was made independent, interest rates tended to be high.

Secondly, as the MPC are aware of this, they should have no problem raising them when required as the Treasury Observer will now be under different instructions. :rolleyes:

BTW remember that Ed Balls is now out of The Treasury, another very interesting observation. :D

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Can someone tell me why a lawyer is in charge of the economy? Maybe my logic is too simplistic, but I would have thought that an economist would be in charge. Or is Alistair Darling just a puppet (as well as a muppet)?

http://en.wikipedia.org/wiki/Alistair_Darling

Hopefully he's aware of that, and will utilise his silky brief's ( :blink: ) skills to ask questions.

Which reminds me....

Shortly after gaining his parliamentary seat, he encountered a member of the local Party Branch in the street, and they fell to discussing this and that, congrats on the seat, the evils of Thatcherism etc. I suppose. Remembering said Comrade's experience in the dark arts of Capital, and anxious to educate himself, Alistair asked "... by the way, what is a merchant bank?"

Luckily, being a Commie Dinosaur, of the sort that carried the FT in one pocket and 20 Regal in the other, the comrade was able to give a concise, accurate, one-sentence answer.

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If mortgage lending falls dramatically as rates rise the lenders will revert back to the old 2% on the base rate to keep their profits up.

I will bet come Q1 next year inflation will still be a serious problem and climbing Globally, hence you will only need a 6.5% base rate to get the 8.5% mortgage rate. Seen it, been there, and in the past no problem, as we borrowed sensibly, not as we see today. ;)

The £150k mortgage over 25 years.

Monthly repayment at 8.5%

£1221.39

(Interest only)

£1062.50

But be careful, at 12% it will be:

£1593.74

(Interest only)

£1500

This would be a very possible senario IF UK interest rates were to stay at 6.5%

I can not see any reason how or why UK IRs could stay so low whilst globally they are heading up, up, up.

Global inflationary pressures have still not even started yet and we still find we have some inflation in the system. It is all heading for the very worst possible senario with debts at such high levels and a likely recession starting in 2008 possibly? In fact the longer it goes on before a recession the worst it will be.

The thing is, the banks think they have it all covered even in the event of a massive downturn as they get their money back by selling the property used as collateral for the loan. This is fine but who can buy the properties even at lowered price? and so on down the line to the trough. I am sure some of the banks realise this and have already put in place a "freeze" policy, so as soon as prices go into freefall they sell as close to mortgaged value as possible and freeze any new business, but if they all do this they will all lose. They need some of the other banks to become fall guys, but its a game of chicken with a few of the banks already putting some early critera on their loans. Reckon its probably Northern Rock who's got the most guts, or are they suicidal maniacs?

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