Saturday, October 4, 2008

House-hold Debt and Rate Cutting.

Interest rate cut will undermine credibility of monetary regime

"It’s become even worse. The screw has turned tighter still. What’s more, the epicentre of this crisis has now headed closer to home". In recent weeks, we’ve seen an alarming rise in sterling Libor – the rate at which UK banks lend to one another. The gap between three-month Libor and the overnight indexed-swap rate is close to 2   per cent. In the year before August 2007, when “sub-prime” burst onto world markets, the same Libor-OIS spread averaged a mere 0.08 per cent."The UK’s fundamental problem is too much house-hold debt: we need house prices to cool and a higher savings rate, both of which argues against cutting rates. That’s the unpalatable truth".

Posted by alan @ 07:47 PM (643 views)
Please complete the required fields.



4 thoughts on “House-hold Debt and Rate Cutting.

  • I have to confess, this whole thing confuses me:

    As far as I can tell there is no difficulty getting a mortgage on the basis of what would once have been normal salary multiples & equity.

    I am at the moment placing some one year bonds as those from last year mature – the interest rates on offer now are virtually the same as then.

    I know I’m missing something here??

    Reply
    Please complete the required fields.



  • The central issue of the article is that if the BoE cuts rates, it will not be reflected in mortagage rates and will show up the bank as having lost control (through its own mishandling of rates).

    Reply
    Please complete the required fields.



  • Some truth in these points but a great deal of people are on variable rates tied to the BoE base rate, also lenders variable rates tend to fall roughly 1.5-2.5% above Base Rate. Lenders dropping their SVRs would make these SVRs more attractive than their fixed rates which they can’t afford to drop if they’re lending via the current LIBOR. So it will have an effect of getting some money in the economy for some people, and bring down some existing variables. It won’t solve the problem.

    Reply
    Please complete the required fields.



  • “…The UK’s fundamental problem is too much household debt: we need house prices to cool and a higher savings rate, both of which argues against cutting rates. That’s the unpalatable truth….”

    Yes and with inflation (even at skewed rates) being 4.7%, will this honestly happen? What happened to the Bank of England letter?

    Reply
    Please complete the required fields.



Add a comment

  • Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
  • Please note that any viewpoints published here as comments are user´s views and not the views of HousePriceCrash.co.uk.
  • Please adhere to the Guidelines

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>