0% interest rates? Effect on housing?

baby_boomer

Telegraph

If interest rates do go to the lowest levels we have known [0% would be the lowest in the Bank of England's history since 1694] would this be enough to lift the housing market?

I guess 0% could only happen if interest rates world wide hit similar lows.

What would be the effect on actual mortgage rates? After all, many people still have fixed rate mortgages and many of the tracker mortgages have "collars" at about 3%. It could turn out to be the necessary means by which the banks rebuilt their ravaged capital bases with a wide spread between saving and borrowing rates. [Cue the inevitable squeals from MSE and Which? and populist MPs]

Would this create inflation? A run on the £? And would the government be restrained on its Keynesian spending plans because of the effects of a collapsing £ ?

Or is asset deflation so built into the system that even 0% would fail to revive the housing market because the banks won't lend and the fear of falling house prices would remain?

Or would there be enough capital around for wealthy buy-to-let investors to start making 8% yields on rental property in a 0% interest rate environment - thereby giving the housing market sufficient pump priming?

From the Telegraph article
"....Mr Goodhart, Professor Emeritus of Banking and Finance at the London School of Economics and a member of the MPC between 1997 and 2000, said: "Interest rates will go down from now, by how far and how fast nobody knows."They could go to zero. They went to zero in Japan in the 1990s when the Japanese had a recession or depression which went on for a long time and was quite severe....."

MSE related links
Does Britain face deflation?

What will mortgage rates be in 2009?

IT_nerd

I really hope we don't panic accept the euro...

baby_boomer

Would they take us ? Will the Euro still exist ? But let's not get off topic too early .

Would 0% interest rates revive the housing market, or would 0% interest rates mean we were in such a deep mess that it wouldn't make much difference to current downward trends?

Generali

baby_boomer wrote: »

Would they take us ? Will the Euro still exist ? But let's not get off topic too early .

Would 0% interest rates revive the housing market, or would 0% interest rates mean we were in such a deep mess that it wouldn't make much difference to current downward trends?

I choose answer number 2 bb. Final answer.

We won't have a situation where interest rates are 0% and assets are rising in value.

tomstickland

I propose that overnight it is officially accepted that all houses are worth twice the mortgaged amount. This will instantly make everyone wealthy and we can all start spending money like there's no tomorrow. This is the prudent way to do it.

baby_boomer

Gordon might be interested in that one as we'd all be in his debt!

moanymoany

Why are all the little red arrows on Bloomberg pointing downwards?

The reducing of interest rates when recession bites does not seem to cure the problems. Japan is the best example. Also the USA have had low rates this year and they seem a long way from recovery.

Deutsche Post has just said in virtually all sectors and countries the demand has fallen and they are not prepared to give any forecasts for 2009.

The guy says that they have been pulling in cash - selling property and cutting back of mergers - getting a good solid cash base to get through the coming Financial difficulties. Interesting, they saw the writing on the wall a year ago and actually did something about it.

Good for them.

baby_boomer

moanymoany wrote: »

Why are all the little red arrows on Bloomberg pointing downwards?

The reducing of interest rates when recession bites does not seem to cure the problems. Japan is the best example. Also the USA have had low rates this year and they seem a long way from recovery.

Good points. The red arrows are perhaps a sign that many are thinking that "just" recession is the best we can hope for.

Realy

moanymoany wrote: »

Why are all the little red arrows on Bloomberg pointing downwards?

The reducing of interest rates when recession bites does not seem to cure the problems. Japan is the best example. Also the USA have had low rates this year and they seem a long way from recovery.

It is not meant to be a cure it is to make the problem less severe
It is funny how so many profess house prices fall and wont recover for years but then expect economies to recover within a month of dropping rates.:rolleyes: