Thursday, Dec 21, 2006

The chances of a New Year IR rise

The Telegraph: Mortgages, house prices and retail all strong can Bank resist higher rates?

House prices and mortgage lending are at the highest levels ever, according to data from the CML and Royal Institute of Chartered Surveyors. Many analysts are predicting the MPC will be unable to resist increasing interest rates in the New Year if Christmas retail figures are strong.

Posted by jellycaster @ 12:18 PM (511 views)
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1. bidin'matime said...

The noose tightens around so-called 'affordabilty'...

Thursday, December 21, 2006 01:13PM Report Comment

2. Cstanhope707 said...

Oh God they may go up to 5.5% how will everyone cope.....

Thursday, December 21, 2006 01:21PM Report Comment

3. inflation is eating my savings said...

Rates in 1992 were 15%. In 1980, they were at 18%.
5.25% is sweet FA. Sorry, the BoE is not on our side.

Thursday, December 21, 2006 02:09PM Report Comment

4. paul said...

I love how the tone of the article is cautionary towards the BofE - "avoid tempation - keep interest rates unrealistically low now!".

Almost as if now that the debt-driven spending boom is threatened, the people who brought it about should suddenly exercise caution not to upset those who have overspent.

The bank is apply caution by NOT giving in to claptrap like this.

Thursday, December 21, 2006 03:00PM Report Comment

5. geed said...

I is E my S...

We are borrowing 3 times as much as we were back in the late 80's. Quite simply this means 5.25% interest on a 150K is the same as 15.75% (3 X 5.25%) on 50K.

A simple example;

50,000 @ 15.75% = 50,000 X 1.1575 = 57,875 or 7875 of interest

150,000 @ 5.25% = 150,000 X 1.0525 = 158,625 or 7875 of interest

By the same token a 0.25% increase is much the same as a 0.75% increase back then.

There are many other things at play such as inflation of wages etc... but interest rates mean nothing unless they are applied to the principle sum that is borrowed or the principle is that is invested. Dont be fooled by the current low numerical value of IR's or very misleading quotes such as "historically low interest rates", It is simply not true.

A question for the slightly older of us out there; Do you earn 3 times as much as you did back in the late 80's early 90's? Forgive my ignorance, I was in high school at the time learning about percentages!

Thursday, December 21, 2006 10:01PM Report Comment

6. geed said...

Oh and another thing.....

"but some members appeared keen to lift rates if there were further strong data.".... oooohhhhh really? THATS THEIR BL00DY JOB! To react to market data and set rates accordingly. Why do they state this as if this may be a surprise??????

Thursday, December 21, 2006 10:18PM Report Comment

7. European-bear said...

And do not forget....leading up to the last house price peak in 1989, people had mortgage interest rate tax a 15% mortgage was effectively a 12% mortgage.....and work out how much you have to pay back each month even if there was a 0% interest rate....say 200,000 mortgage...paying back 1000 a month of the capital would take nearly 17 years (and 1000 a month is a big sum and 200,000 mortgage is common)........
But house prices always go up do they not?

Friday, December 22, 2006 07:22AM Report Comment

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