Thursday, Sep 28, 2006

Analysis of the implications of debt, long term and short term.

The Independent: A precarious situation - especially if house prices crash

Interesting and reable article but one which does not go into the issues in depth. Shame really. I like the bit"Alliance & Leicester, has calculated that the base rate, now at 4.75 per cent, would have to hit 8.5 per cent to put householders under the same level of pressure as at the peak of the Eighties boom." Are interest rates likely to reach 8.5% - errr, probably not.

Posted by talking rot @ 09:52 AM (543 views)
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1. paul said...

"One bank, Alliance & Leicester, has calculated that the base rate, now at 4.75 per cent, would have to hit 8.5 per cent to put householders under the same level of pressure as at the peak of the Eighties boom."

but then the article says

"At the same time the Bank of England may find the debt mountain makes it harder to set the right interest rate to tackle inflation. The larger the debt, the more painful the impact of any given increase."

Come on. Make your mind up!

So the title says one thing but the article says something completely different. I'd expect this kind of sketchy pseudo-analysis from David Smith in the Sunday Times, but not the Independent.

It's the same sort of "no-one worry it's all going to be fine as long as such and such and such and such etc. etc. etc."

Play us another tune Nero! Never mind about that blaze in the background!

Thursday, September 28, 2006 12:41PM Report Comment

2. Ticktock said...

Ref - But if mortgage debt is almost unequivocally "good - Is it? If you are a bank maybe.

Ref -We are not going back to very high rates. In this age of low inflation - ah, the low inflation lie again. WRONG.

Ref - are interest rates likely to reach 8.5% - err, yes, probably.

Thursday, September 28, 2006 12:45PM Report Comment

3. Geed said...

Can't help thinking that the majorioty of people writing these articles in the papers have;

A) a house
B) a not too small mortgage &
C) possibly the odd BTL mortgage

So whilst trying to protect there own interests, their sentiments have recently changed and they realise that this thing may well just fall apart and as result they need to get a few articles in the press saying "well it might all turn Pete Tong" instead of their usual " dont worry, it will be alright". This is so they can say I told you so if need be when we are in the midst of a future crash.

Thursday, September 28, 2006 01:00PM Report Comment

4. the bald man said...

According to the Evening standard sprnding on mortgages is 50% to 70% of disposable income. So rates go to 8.45% (a rise of 80%). That does not leave much to live on!

Thursday, September 28, 2006 06:53PM Report Comment

5. sirgoogle said...

Its rubbish. They have not taken into account how much has been borrowed. In the late 80s it was about 6 times single salary - with interest rates at 9%. I think now the multiple is much higher (6-7x joint salary) and therefore the interest rate rises do not need to be so great. In addition there is now much more greater unsecured debt.

Thursday, September 28, 2006 10:52PM Report Comment

6. bidin'matime said...

Also there was more wage inflation in the 1980's to erode the debt, which reduced the effective interest cost, but wage inflation is now much lower, so the pain will remain.

Thursday, September 28, 2006 10:59PM Report Comment

7. Squirrell said...

and its not overall debt thats relevant - its the debt taken on by NEW buyers that is relevant as they are the ones who need to keep the hot air in the bubble.

Friday, September 29, 2006 12:07AM Report Comment

8. Micthemike said...

8.5 percent cant see it getting to that only if there is a major global crash ie oil gets to 100 dollars , this house pyramid is not like 1990, the ridiculous debt levels, could result in a house price crash. one thing that bugs me they can never get debt stats right, latest report 1.1 trillion well my last reading was 1.237 trillion for the end of july they were only 137 billion out.

Friday, September 29, 2006 09:18AM Report Comment

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