We’d like to remind Forumites to please avoid political debate on the Forum.
This is to keep it a safe and useful space for MoneySaving discussions. Threads that are – or become – political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.
Debate House Prices
In order to help keep the Forum a useful, safe and friendly place for our users, discussions around non MoneySaving matters are no longer permitted. This includes wider debates about general house prices, the economy and politics. As a result, we have taken the decision to keep this board permanently closed, but it remains viewable for users who may find some useful information in it. Thank you for your understanding.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
Neutral Base Rate now just 2.5%.... rates to stay low for years....
HAMISH_MCTAVISH
Posts: 28,592 Forumite
http://www.telegraph.co.uk/finance/economics/7021000/Neutral-interest-rate-may-be-2.5pc.htmlIn previous years economists and policy-makers assumed that when the Bank of England's benchmark rate was at around 5pc, it was neither pumping extra energy into the economy or constraining growth.
However, Morgan Stanley said the future neutral rate may be closer to 2.5pc or 3pc.
In a report on the UK's economic prospects, Melanie Baker and Charles Goodhart said that if banks continue to charge customers a higher premium to borrow, it will mean the Monetary Policy Committee cannot raise interest rates beyond a certain level without risking a consumer slump.
In their report, they said: "Pre-crisis, our analysis had suggested that the neutral rate in the UK – a policy rate consistent with inflation not moving sharply from its current rate and with output remaining close to capacity – was between 4.5pc and 5.5pc. Since then, however, spreads on lending rates have widened substantially relative to the base rate. If this is a permanent feature, it suggests that our estimate of the neutral rate needs to be lowered accordingly. We see bank lending rates remaining elevated for a number of years. Lending rates from the mortgage market, for example, suggest that the estimate of the neutral rate should be lowered by as much as 200 basis points compared to pre-crisis levels."
The analysis chimes with a warning from the Bank itself that if it were to raise interest rates to 4.5pc, it would push up the average family's debt servicing costs to levels similar to the early 1990s, when benchmark rates were in double figures. It implies that even if the Bank increases borrowing costs later this year, as many expect, it will not have to lift them as high as in previous cycles.
The report also said that despite fears the UK would face a dismal 2010 and 2011, there are significant chances of a strong economic rebound. It added that the market had over-done its worries about the possibility of a UK sovereign debt crisis, but urged the Government to slash the deficit faster.
Confirms the analysis of many on here, rates will stay low for years at least, and more likely for decades.
The average rate for the whole of the next housing cycle may well be around the 2.5% mark.
Not good news for anyone counting on high rates to kill HPI....;)
“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”
0
Comments
-
HAMISH_MCTAVISH wrote: »http://www.telegraph.co.uk/finance/economics/7021000/Neutral-interest-rate-may-be-2.5pc.html
Confirms the analysis of many on here, rates will stay low for years at least, and more likely for decades.
The average rate for the whole of the next housing cycle may well be around the 2.5% mark.
Not good news for anyone counting on high rates to kill HPI....;)
It seems you have a problem distinguishing between the BoE Interest Rate & Mortgage Interest Rates.
One is linked to the housing market more than the other..Not Again0 -
1984ReturnsForReal wrote: »It seems you have a problem distinguishing between the BoE Interest Rate & Mortgage Interest Rates.
One is linked to the housing market more than the other..
Almost all mortgages are linked to BOEBR.
What should worry you, is that the only remaining hope for the bears is for dramatically rising rates to instigate a wave of forced selling.
2.5% just won't cut it I'm afraid, not when 5.75% base rates were perfectly affordable at peak. Such a dramatic rise now looks like a near impossibility.
To compound your problem, as long as bank margins stay high, people don't want to move and give up their existing great deals, which even on SVR from the major lenders, are often comparable to the best deals today.
Leading to a further exacerbation of the shortage of supply that could last for decades.
If this research, and the BoE's comparable statement, is true, then it really is game over for the housing crash.“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
Cillit-Mortgage.0
-
“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
You seem to extend the prognosis every time you post a IR related articleHAMISH_MCTAVISH wrote: »Confirms the analysis of many on here, rates will stay low for years at least, and more likely for decades.
One thing on my mind is that article was composed and opinions given before today's inflation figures - which were higher than expected.0 -
"comfirms the analysis of many on here"?
Analysis?
Repeating the thoughts of some VI commentators in the hope that HPI will bail you out is not analysis in my book."The problem with quotes on the internet is that you never know whether they are genuine or not" -
Albert Einstein0 -
Since then, however, spreads on lending rates have widened substantially relative to the base rate. If this is a permanent feature, it suggests that our estimate of the neutral rate needs to be lowered accordingly
Leveraging to invest is becoming less and less profitable.
Cash is king.
0 -
HAMISH_MCTAVISH wrote: »The average rate for the whole of the next housing cycle may well be around the 2.5% mark.
Well, don't know what all the panick is about - that's a walk in the park isn't it!:cool:
I'm serious and IT'S TRUE:o0 -
HAMISH_MCTAVISH wrote: »Almost all mortgages are linked to BOEBR.
.
Um. Wow. Well, actually, how I read the article is that the spread between base rates and mortgage rates has increased, and so rising base rates to 2.5% has the same effect on mortgage rates as a rise in base rates to 5% prior to the crash.
In other words, it is not good news as far as the economy is concerned, it is slightly bearish (in so far as the markets are contraining the BoE's ability to stimulate the economy) but mostly neutral (in so far as the effective interest rate will probably end up where the BoE wants it anyway).“The ideas of debtor and creditor as to what constitutes a good time never coincide.”
― P.G. Wodehouse, Love Among the Chickens0 -
Aren't the banks using bigger margins to recapitalise?
So when they've finished doing so, they can get back to competing and the IF in "if banks continue to charge customers a higher premium to borrow" doesn't end up happening for much longer, let alone decades.0
This discussion has been closed.
Confirm your email address to Create Threads and Reply
Categories
- All Categories
- 352.3K Banking & Borrowing
- 253.6K Reduce Debt & Boost Income
- 454.3K Spending & Discounts
- 245.3K Work, Benefits & Business
- 601K Mortgages, Homes & Bills
- 177.5K Life & Family
- 259.1K Travel & Transport
- 1.5M Hobbies & Leisure
- 16K Discuss & Feedback
- 37.7K Read-Only Boards