Interest rates

SGE1

With simultaneous predictions of hyperinflation and deflation, I'll pin the donkey's tail on the 4.5% mark - we'll get there in about 2 years, and stay there for about 2 years.

mewbie_2

SGE1 wrote: »

I'll pin the donkey's tale

Would that be similar to a tail? I don't normally bother with picky details but in your case I feel a need to make an exception.

SGE1

mewbie wrote: »

Would that be similar to a tail? I don't normally bother with picky details but in your case I feel a need to make an exception.

Tut tut, making out like I've made a mistake. What mistake?

exil

Japan has had zero interest rates for several years - and it's not been enough to get them out of recession. inflation has also been more or less zero. And Japan has a huge national debt


TBH I have no idea if the pound is going to go up or down. Or if interest rates will stay low or start going up. Or if inflation will stay low or start zooming up. Which I guess makes me pretty ignorant amongst the financial Mystic Megs on here who must I assume have made billions speculating on currencies and shares and I guess are logging in from beside their olympic size swimming pools.

JP45

exil wrote: »

Japan has had zero interest rates for several years - and it's not been enough to get them out of recession. inflation has also been more or less zero. And Japan has a huge national debt

TBH I have no idea if the pound is going to go up or down. Or if interest rates will stay low or start going up. Or if inflation will stay low or start zooming up. Which I guess makes me pretty ignorant amongst the financial Mystic Megs on here who must I assume have made billions speculating on currencies and shares and I guess are logging in from beside their olympic size swimming pools.

I agree, the truth is no one really knows. There is an extraordinarily wide range of opinions amongst the real experts (economists and the like), from prolonged deflation on the one hand to hyperinflation on the other, with each camp putting forward perfectly sound arguments to support their case. All of which makes it extremely difficult to plan for the future.

Adebisi

whathavewedone wrote: »

The example I've given is extreme but there are a lot of people who will have mortgages of around 200k who live in fairly modest family homes. If we have price crashes of 50% or more followed by very high interest rates there will be absolute carnage unless negative equity mortgages at reasonable fixed rates are brought in.

do you think they would ever create negative equity mortgages to prevent repossessions and defaulting if the intrest rate does shoot up again?

ad9898_3

Adebisi wrote: »

do you think they would ever create negative equity mortgages to prevent repossessions and defaulting if the intrest rate does shoot up again?

Unlikely, that generation will be FUBAR'd, and replaced by the new generation that will pay much less, have money to spend on other things and be able to spend more time with family. Much better for society in the long run, but there will be casualties in the short term, unfortunately for them 'property doesn't always go up' will be on their tombstone.

Paulgonnabedebtfree

GooeyBlob wrote: »

Deflation is not really part of the equation, despite what politicians and bankers say. It's simply an excuse to justify dropping rates in a futile attempt to re-start the credit boom. The collapse in the housing market will continue to skew the RPIX figures for a while, but CPI will remain stubbornly high as the price of everyday goods increases. With the dramatic fall in the value of sterling, imported goods cost far more, so the pressure on prices is upward.

You may not notice it yet, other than in supermarket prices (I keep a very keen eye on these, and they've been going through the roof of late), but 12-18 months down the line you certainly will. The low rates are storing up trouble for the future.

Don't forget, the VAT cut is distorting the figures somewhat - and that is only a temporary measure, although I'd hazard a guess that they'll extend it until after the next election, whenever that is called.

What's the chances of joining the Euro do you think? Could that ease the inflationary pressures caused by the exchange rates. Yes, I've noticed certain things starting to shoot up in price too. I imagine that will feed through into the inflation figures. At the moment, certain basics going up is being partly offset by luxuries coming down. However, the price of luxuries can only drop so low.
More self sufficiency to minimise imports would be a partial solution but that requires investment.

Blunty

Adebisi wrote: »

do you think they would ever create negative equity mortgages to prevent repossessions and defaulting if the intrest rate does shoot up again?

Isn't a 'negative equity mortgage' just a big deposit? That's what hedges the banks against future losses.

As for the future trend for IR, I'll be keeping an eye on what banks are offering for long-term fixes to get an idea of where the markets think overall rates might be heading.

whathavewedone

I honestly do think that we will see negative equity mortgages again but they will only be available to people with spotless credit records.

Think about it. The worst of the recession is over. The bottom of the market has been reached. House bought for 400k with mortgage of 300k is now worth 250k - what would it fetch at auction - £220k? Leaving owners who would be able to pay their mortgage at rates of up to 6% out on the street with 80k to pay back to the lender plus admin fees etc. How is that in the interests of the bank? People in their 30s would never have a hope in hell of getting back on their feet again so it would be far easier to just declare themselves bankrupt than work 3 jobs each in the hope of paying back that 80k before they retire.

The example I've given is of people who have a decent deposit but what about those who bought at the peak with 5, 10 and 15% desposits? The banks are far more exposed than they were in the last two recessions when prices didn't fall so sharply and people had less negative equity. In those circumstances repossession was obviously the best option.

The other difference is that in this recession the banks have been heavily criticised, one of them has been nationalised and others have received taxpayers money. The majority view is that they are under a duty to help people rather than repossess asap.

The Coventry are already offering 5 year fixed 100% mortgages on favourable terms to their existing borrowers and the recession is nowhere near over. At the end of the day the banks want their money. It makes sense to have borrowers paying their mortgages at 5% than to kick them out by sticking them on an SVR if interest rates are 12%.

I think if interest rates do shoot up to those figures it will be new borrowers who are exposed to them. After all they will be able to buy property much cheaper than existing borrowers did and should be able to afford to pay high interest rates for a year or two.

Finally if interest rates do go up at the end of the recession house prices will probably start to rise which means that if they can keep existing borrowers in their homes during that period they will probably be out of negative equity at the end of it. Less of a risk to the lenders than repossessing when prices are low and not many want to buy because of high interest rates. Their losses would be enormous.

Seems to me to be the most expedient way out of the mess anyway.