Monday, August 15, 2011

Wishful thinking?

MORTGAGE JOY FOR MILLIONS - interest rates to 0.25%

''HOMEOWNERS are set to enjoy a huge boost with mortgage costs plummeting under plans to take interest rates to a record low, experts said yesterday. Millions on tracker deals would see £600 slashed off their yearly repayments should the Bank of England take the rate down to 0.25per cent. And it would be good news for those on fixed-rate deals, with lenders forced into a price war to attract new customers.''

Posted by hpwatcher @ 07:32 AM (3062 views)
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12 thoughts on “Wishful thinking?

  • little professor says:

    This is turning into a banana republic.

    Ireland house prices are down 50% from peak, with some expecting a drop of 70% before they reach the bottom. Here, thanks to the BoE’s desperate attempts to save the housing market, we’ve had at most a 10-15% correction, while general inflation is soaring. Inflation has been ‘unexpectedly’ high for all but three quarters since 2005.

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  • The cosy assumption that low interest rates are here to stay looks primed for a rude awakening..

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  • happy mondays says:

    Why is that uncle tom? They seem to make the figures fit thus manipulate the market & IR’s.

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  • Mervyn retries in 2013, hope fully we will get someone a little more vigilant in charge.

    Ireland is looking a good bet at the moment if you ignore the debt issues:
    Housing has become cheaper = labour has become cheaper = faster recovery than the UK.

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  • mark wadsworth says:

    Meanwhile, on page 4, “Pensioners and savers clobbered while bankers cream off billions in bonuses”.

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  • hm,

    The markets are only piling into government debt as a defensive measure – the returns are appalling and there are serious downside risks.

    Commerce meanwhile is recovering well from the credit crunch, and is proving that you can still turn a good profit in a downturn.

    The equity markets deserve to enjoy a lot more confidence from investors, and when that happens, the exodus from fixed income will lever interest rates..

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  • UT I agree with you over a period of months but still expect this secular bear market to roar at least once more. Russell Napier is interesting on this topic. He sees an S and P 400 within the next 2 – 4 years, based on increased tightening in China to fend off domestic inflation and an effective unwind of the dollar carry trade – ie reverse of dollar/T Bill stash by China to suppress its own currency. This seems plausible to me if only because equities never got really cheap in in the early part of 2009.

    If this happens (ie the Chinese stop exporting a form of disinflation) then the US will need to tighten in the face of rising oil prices etc as denominated in $.

    This would see equities plunging and bond yields spiralling upwards (cf 2008/09) and would a final stake in the heart of inflated house prices.

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  • As to house prices, I think we are at a point where it won’t take a lot to shift the dial – at least here in Scotland, where incredibly low transaction volumes are resulting in an ongoing build up of inventory. This inventory increase is continuing month on month and a good number of the sellers have to sell and have equity eg deaths – there are 12 million pensioners out there and a lot of them are home owners, or moves for employment reasons.

    I see houses the market for many months with no appetite/ buyer capacity at the prices asked. I don’t think even a 10% drop would make any difference

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  • bellwether,

    The big issue re. houses is the near total absence of genuine FTB’s now. Borrowing Mark’s famous fag packet, I’m calculating that something like 150,000 additional houses, at a cost of around £22bn, need to be added to the stock of private lets each year, just to keep pace with demand.

    Put into perspective, that is not far from the level of purchases when the BTL frenzy was at its peak, and lenders were throwing money at people.

    When BTL was all the rage, no-one really looked very carefully at the demand side, as everyone was so focused on capital growth. The upshot was a huge overhang of property to let, relative to demand.

    That slack appears to have been taken up now, and while the prospect of good rental yields is attractive, the downside of capital values possibly contracting is going to deter people from piling in as they did before.

    – An economic rent in a stable market is around the 6% mark, so for a £150k property, that equates to £9,000 p.a. or £750 pm

    – If yields rose to 8%, the rent would jump to £1k pm, which many tenants would find very hard to afford.

    – After voids and fees are taken into account, that would put about £2500 p.a. extra in the landlord’s pocket..

    – But it would be more than wiped out if the value of the house fell by just 2%..

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  • mark wadsworth says:

    UT, we need about 150,000 a year to keep pace with ageing population – half of the increase in population since 1945 has been in the over-60s group. Whether we ought to allow more houses to be built over and above that is a separate issue.

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  • MW,

    I’m not addressing the build rate here, but the massive cash inflows needed to provide an adequate supply of property to let..

    ..my guess is that these inflows will not materialise, that rents will rise further while homes that need to be bought by the rental sector (because young people have stopped buying) will go unsold, and therefore fall in value.

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  • mark wadsworth says:

    UT, fair point, but…

    If we assume that ALL young people go on a buyers’ strike and only rent, then somebody has to own the housing I suppose, but in that case your fag packet is wrong – there are about a million people in each age group (i.e. a million aged 20, a million aged 21 and so on), so even assuming young people share two or three to a home, that means something like 400,000 homes a year have to be bought by BTLs (assuming council housing is full) in other words, every single home which is offered for sale. 400,000 x £150,000 = £60 billion a year. That’s a lot of money!

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