Friday, Oct 27, 2006

Rates to reach 5.25%, UK saving only 4% of income

Firstrung: Bank of England needs to raise interest rates to 5.25% to reach inflation target - NIESR

Inflation should fall back to the prescribed target by the end of next year if the Bank of England raises interest rates by another 50 basis points, the leading think-tank, NIESR has stated today. Financial markets were already gearing up for a quarter-point rise in borrowing costs to 5.0 percent in November and are starting to price in another rise early next year as policymakers have continued to stress their determination to keep prices and inflation under control.

Posted by converted lurker @ 11:46 AM (539 views)
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1. kpjcomp said...

The BBC have now picked this up->

http://news.bbc.co.uk/1/hi/business/6090754.stm

Friday, October 27, 2006 01:12PM Report Comment
 

2. C'mon Correction said...

A definite swing in sentiment over the last month that the near and long term future doesn't look too good for the UK housing market. That is might I add, excluding London which will have the Olympic effect and city bonuses for a few more years.

Some points -

Unemployment is still soaring.

Interest rates are mentioned at 5.25% - 6% for next year.

Central banks still tightening over the coming year - EU, Asia zone, Australia, Japan, probably the Fed plus others.

Wage inflation is rising even after huge immigration.

Now limits on immigration (the government know that benefit has come to an end and won't benefit the economy anymore like it has) which I can see getting ever tighter still over the next 3 years

Inflation in general is being muttered by the public once more.

Loads of streets with ever more sale signs here in Cardiff. One down the road, newly built 3 years ago - 8 for sale out out of two blocks of 11 - over a third ! Plus three new estates within 3 miles - one large one of 500 units. Absolute rubbish about short supply here.

And yesterday my brother's friend, a landlord calling the top of the market here in South Wales and selling 5 of his 8 properties.

Over the next two years more and more people will realise that this market is unsustainable and a correction will come about naturally. As it always does.

I'm in good mood ! :o)

Friday, October 27, 2006 02:04PM Report Comment
 

3. tyrellcorporation said...

Joy to us!!!

Even if this doesn't cause HPC, it'll mean my savings will more easily cover my rent payments. You never know I may even be in a position to live virtually rent free and risk free... HUSSAR!

Friday, October 27, 2006 02:15PM Report Comment
 

4. kpjcomp said...

tyrellcorp,

Yeah, same here. But I've worked out to be totally rent free I need about 6.8% from savings, currently getting 4.75% from FD, but transferring this to ICESave for 5.2%.
But even now is only costing me 175 per month renting, after getting 400 per month from interest after tax. Also the money that I would be spending on a mortgage I'm also adding to my savings, so each month I'm getting slightly more even if interest rates don't go up. :) HUSSAR!! again.
I'm also tempted to move from my current rental accom, because I've seen a really nice detached 3 bed house for 500 pm, 75 less than I'm paying now. And the place I'm lliving now aint too bad either. Never thought I'd say this, but I'm starting to like this Renting thing, never had so much disposable income in my life. :). Also I've really supprised myself on how you can make rented accom very homely, especially when you have lots of disposable income. And of course if you rent, if you find the area is not very nice, just go somewhere else.. :)

Friday, October 27, 2006 02:41PM Report Comment
 

5. devil's advocate said...

All good if you never want to buy a property I guess. I generally view it as the missed opportunity of making money through HPI. Any savings are being eroded by HPI.

5.25% is not going to cause a crash, I may have to buy.

Friday, October 27, 2006 05:24PM Report Comment
 

6. devil's advocate said...

All good if you never want to buy a property I guess. I generally view it as the missed opportunity of making money through HPI. Any savings are being eroded by HPI.

5.25% is not going to cause a crash, I may have to buy.

Friday, October 27, 2006 05:25PM Report Comment
 

7. tyrellcorporation said...

C'mon DA, things a re finally going our way after years of whining! All we need now is for Iran to get the hump and block the Strait of Hormuz and we'll be sitting pretty!

Friday, October 27, 2006 06:32PM Report Comment
 

8. Rimmer said...

Whats all the talk of 5.25%, with IRs going up globally long term and currencies to protect my money is on 8% by 2010.

Friday, October 27, 2006 06:48PM Report Comment
 

9. markd said...

Re c'mon's comment re the Olympics-I am still at a loss to understand why this event, important as it may be, is supoosed to underpin house prices in the capital for 6 years and beyond? I can see that in certain areas it may be possible to rent a property out at a premium for 2 weeks in 2012, but what other broader issue is at play?-infrastructure spending etc will improve certain areas but is that really so important in the big scheme of things?

Friday, October 27, 2006 07:56PM Report Comment
 

10. Nohpc said...

Tyrell and kjcomp. Again you talk about your savings paying your rent. What you completely forget yet again is that with a mortgage you own the property after 25-35 years and after years of renting you own nothing. You may have saved some money but you will completely miss out on capital gains over this time. Can you do me a favour and tell me how long you plan to wait for a possible crash? What if it doesn't happen in 5 years will you buy then? If prices drop by 10% will you buy then? Saving is a very poor way to get the maximum return on your hard earned cash. The property market, like the stock market will have it's roller coaster ups and downs, it's bull and bear runs but it will return more than any savings account over the longterm. That's why I don't care if the property market crashes just now because I am in it for the long run. I will only be in it for the short run if the London property market booms again in which case I might try and sell once I make 20% profit. \

Markd as to the olympics. It will drive prices in the capital because it will make london a better place to live. Infrastructure will be better, there should be more nice things to look at like parks and fountains as in barcelona. If there is a boom london will boom the most. If there is a crash I doubt that London will be magically exempt. However, I think a crash is unlikely due to current stability across the board (economy, interest rates, employment)

Friday, October 27, 2006 09:05PM Report Comment
 

11. Nohpc said...

Rimmer, as with houseprices interest rates can not only go up they can also go down. I don't see them going anywhere near 8%. They will start to drop again once they near 5.5% . You are taking a huge gamble hoping for this rate and then don't forget you have to pay tax on your savings so it is still a crummy return.

Friday, October 27, 2006 09:07PM Report Comment
 

12. C'mon Correction said...

markd,
Only mentioned London bucking the trend slightly for the next few (2-3 at best) years because of Olympics factor; but ALSO because of BIG city bonuses - some of this money will flow into property. This is what is skewing property reports (assuming they aren't fiddled !!) that report a national HPI at moment. Also in percentage terms London hasn't risen as sharply as other places around the uk and is more affordable in terns of income ratios (according to news reports?!).

The market is unsustainable and above trend everywhere at present [FACT}, nowhere is what I'd call a safe bet to put money into.

Saturday, October 28, 2006 12:30AM Report Comment
 

13. Retiredbanker said...

markd-

The Government will latch onto anything to try and create a "feel good" factor.

IMO the forthcoming Olympics are a good reason to get out of London.

Ditto the expansion of Heathrow airport, a complete waste of money in view of the forthcoming
oil depletion. But then as Private Eye commented some years back Blair and co. are obsessed
with air travel. He and Brown like to jet around the World posturing as a great statesmen, whilst
ignoring the many problems back home.

Saturday, October 28, 2006 11:44AM Report Comment
 

14. Rimmer said...

NoHPC

Your correct that you have to pay tax at the moment on savings but that's probably why nobody saves any more, it will have to be corrected if a sensible government comes to power, as to 8% I agree that's pessimistic but I honestly do see interest rates slowly edging and staying above 5% for the next decade at least.>>>>>

http://www.finfacts.com/irelandbusinessnews/publish/article_10007841.shtml

http://www.bis.org/speeches/sp060512.pdf

Saturday, October 28, 2006 04:52PM Report Comment
 

15. kpjcomp said...

Nohpc,

I think your forgetting something yourself,. The point of my rent been paid, is that the money I actually work for can do other things.
Like even more Savings, yes if I buy a house I'll have a house after 25 years,. But I still need to live somewhere, so what am I getting extra again??.
Appart from having to scrimp & save for 25 years to pay a mortgage!!
And what do you mean I'll have nothing?, you mean appart from the 500,000+ savings. And before you say, yeah 500,000 won't be worth as much as it is now, but my wages would have increased in the time being, meaning my saving will most likely be even higher.
Also houses will come back into line, that's for sure, maybe another year, maybe 5, but one thing for sure it will.
And because I've not spent half my wages on a mortgage, and my Savings have grown v.nice, I might actually have some money to retire on, what will you do, sell your house, and live where again.? Maybe you'll end up renting.
The bit I really like is, the no risk factor. I could go and buy a house now, pay for it for 10 years, then struggle to keep up the rest of the payments, my house could still end up been worth less than I've paid, house get repossessed, then what have I got to show for it?

Now Nohpc, try adding up the pro's & con's, is buying a house in the current climate really that good?..

Sunday, October 29, 2006 01:14AM Report Comment
 

16. indiablue19 said...

kpjcomp...

My thinking is similar. Maybe we need to adjust our idea of "gain."

Two key factors in this house investment business that make it immediately unattractive as an investment:

1) First the idea that the market can crash, and normally does in a cyclical fashion. All indications are we're nearing the top of an historically high "up" cycle and headed "down." So I'm thinking at this stage of paying the highest amount possible [or nearly so] for a product and almost certainly having the value deteriorate before my eyes. How does that equate with sound investment?

2) And second, unlike other investments the only way I can enjoy my prize is if I sell it and I'm likely living in it. If I sell stocks, gold, or anything else I've acquired I pay my tax and bank the rest. If I receive interest payments on savings, same deal. If I buy a property and it DOES appreciate and I do make a profit, but then need another to live in right away at similar cost -- where's the profit?

This profit on property as an investment almost certainly doesn't work unless, perhaps, you are talking about something other than a principal residence such as a commercial venture. And even then the lack of liquidity could be killing in relation to missed opportunities on a short turnaround.

Sunday, October 29, 2006 01:43AM Report Comment
 

17. Nohpc said...

Indiablue I would like to point out that you thought the market was at its peak several years ago and have lost 10s of thousands of pounds as a result of this opinion. I understand if you bought now you may lose out short term but for those of us who have owned for a few years even a crash is probably going to result in break even.

How much (realistically) do you think your hpc will be? I don't want any silly answers like 50-80%. And you have to take in account any short term rises in HPI starting... NOW .

Sunday, October 29, 2006 02:14AM Report Comment
 

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