BOE Bean: Will Keep Rates Low For As Short A Time As Possible

Thrugelmir

Dan: wrote: »

Your right, it's not a question of affording repayments and savers will certernly benefit (at last!).

It does not mean people will stay in debt for longer, as I said most debt (personal loans/credit cards etc) are fixed - and so it does not matter what the base rate is doing.

The reason I asked the question is because there are some 'bears' on this very forum that seem to assume higher interest rates will cause a second house price crash - their final hope I guess.

It seems 20% down from peak is not enough for some.

Credit cards don't have fixed rates of interest and in fact have risen sharply this year. Many being well over 20%.

Mortgages are long term products. Any significant rise in interest rates in the next few years will hurt. On a 25 year repayment mortgage after 15 years , 60% of the capital is still owed. We had a house boom for 10 years. So there's lots of people with years to go in repaying their mortgages.

Not forgetting either that between 2003-07. Around 25% of mortgages were made on an interest only basis. Meaning no capital is (was) being repaid.

With 10% of residential mortgages in the hands of investors. Don't discount a fall in the market when people decide that they are better returns to be had elsewhere. Shares will come back into fashion at some point.

inspector_monkfish

Poolie wrote: »

I think the rates will rise but will not be this month especially with the Debt figure out this morning.

May see a rise in August but more than likely September depending on how the housing market and inflation numbers are looking. If it does rise it will be slow and steady so expect 0.25% rises over a long period.

No mate. It def won't be this month - thats a given !!

Thrugelmir

chucky wrote: »

they're currently 3.59% after a few weeks of moving downwards small amounts. they jumped an amount last week.

they were creeping up since February and got to about 3.8ish%.
http://www.swap-rates.com/UKSwap.html

Worth remembering that banks don't have to lend to each other at all.

This is just a market rate.

inspector_monkfish

Thrugelmir wrote: »

LIBOR is the avearge rate that the banks lend to each other depending on their liquidity positions. Banks are required to balance their books every day so in fact borrow at that rate.

Also worth remembering that LIBOR is a median rate. The top and bottom rates being excluded from the calculation.

Five year libor swap rates are nearer 4%. Which is a better indication of where rates are heading.

LIBOR is also used a rough reflection of where banks may feel rates will be in x amount of months. So are Short Sterling Futures.

at the moment, all they are doing is tumbling.

chucky

Thrugelmir wrote: »

Worth remembering that banks don't have to lend to each other at all.

very true - why would they lend when Libor is so low and they have a potenital 'risk' of someone defaulting? less likely now but it you never know what could happen.

Thrugelmir wrote: »

This is just a market rate.

it's just not the market rate. most commercial loans have a relation to Libor or Swap rates when they are taken out. the banks then put on a margin/differential percentage on tp. currently 2.5% or 3%.

inspector_monkfish

chucky wrote: »

very true - why would they lend when Libor is so low and they have a potenital 'risk' of someone defaulting? less likely now but it you never know what could happen.





it's just not the market rate. most commercial loans have a relation to Libor or Swap rates when they are taken out. the banks then put on a margin/differential that is currently 2.5% or 3%.

trust me, LIBOR is actually high, compared to where some banks can arbitrage their funding requirements

Thrugelmir

chucky wrote: »

very true - why would they lend when Libor is so low and they have a potenital 'risk' of someone defaulting? less likely now but it you never know what could happen.

Because as a bank if you've got deposits that isn't lent - ie earning interest. You'd be able to lend overnight to another bank.

The crash happened because banks were concerned about each other defaulting, causing inter bank lending to dry up. Thereby causing some banks to be technically insolvent under banking regulations. RBS suffered in particular because large depositors in Asia pulled wholesale funding out of the bank. RBS was unable to borrow elsewhere in the market to fill the void.

Thrugelmir

chucky wrote: »

it's just not the market rate. most commercial loans have a relation to Libor or Swap rates when they are taken out. the banks then put on a margin/differential percentage on tp. currently 2.5% or 3%.

I appreciate that. My point was in answer to the previous posts in that LIBOR is fundamentally an interbank lending rate. That banks use to each other. In order to set and maintain an orderly market. It doesn't directly set a rate for lending to businessess or consumers. Other than when a rate of interest is linked to it.

Dan:_4

Thrugelmir wrote: »

Credit cards don't have fixed rates of interest and in fact have risen sharply this year. Many being well over 20%.

That was my point - the base rate has nothing to do with credit card interest rates. Any advice would be to transfer the debt to a 0% deal or a life of balance deal.

Thrugelmir wrote: »

Mortgages are long term products. Any significant rise in interest rates in the next few years will hurt. On a 25 year repayment mortgage after 15 years , 60% of the capital is still owed. We had a house boom for 10 years. So there's lots of people with years to go in repaying their mortgages.

I don't understand what your getting it here. Of course mortgages are long term products, but how will a significant rise in interest rates hurt. People are likely to buy a fixed product while interest rates are low, and hopefully fixing for as long as possible.

Thrugelmir wrote: »

Not forgetting either that between 2003-07. Around 25% of mortgages were made on an interest only basis. Meaning no capital is (was) being repaid.

What is your point here?

Thrugelmir wrote: »

With 10% of residential mortgages in the hands of investors. Don't discount a fall in the market when people decide that they are better returns to be had elsewhere. Shares will come back into fashion at some point.

People are already getting back into shares, but long term, nothing will beat property - ever.

david_hellier

Can't see interest rates rising for some time while the government has so much debt. Higher interest results in more public spending cuts; a political hot potato. Politically these rates must be kept low.