5 Reasons Rates Will Stay Low for Years....

perplexed.com

Those of us who remember rates of 14% ( or was it 15%?) have been marked by the experience. The thought of that possiblity (however remote) makes me very risk averse and tend towards opting for a fixed rate regardless of the forecasts! A tracker is only good if you track base rates down and nothing in life is guaranteed.

ses6jwg

perplexed.com wrote: »

Those of us who remember rates of 14% ( or was it 15%?) have been marked by the experience. The thought of that possiblity (however remote) makes me very risk averse and tend towards opting for a fixed rate regardless of the forecasts! A tracker is only good if you track base rates down and nothing in life is guaranteed.

exactly, its this kind if short sightedness that got a lot of people into difficulty in the first place.

Entertainer

HAMISH_MCTAVISH wrote: »

http://www.telegraph.co.uk/finance/comment/tom-stevenson/7003135/Interest-rates-the-lower-the-better.html

Worth noting that the author, a professional investment commentator for Fidelity and The Telegraph, has put his money where his mouth is and just taken out a tracker mortgage.
:beer:

Well that clinches it for me. In between charging 5% initial fee and 1.5% annual fee for the expert skill of losing people money over ten years, it is good to know that he has the very real moral hazard of a tracker mortgage in his life that will compel him into making perfect investment decisions in the future.

Shakethedisease

apparently it's only less than 8% of property (last July) was in negative equity

People get locked in to svr's for all sorts of reasons, not just negative equity... a £30 mobile phone bill default, or a missed credit card payment is usually sufficient to block a remortgage these days.

heating-eng

i hope rates do stay low ..if mine goes up i would find it hard to pay my mortgage

Generali

Hi Hamish. A question for you. Do you think that very low interest rates resulting from a sluggish British economy is likely to be positive for house prices overall or is it just positive for your investment strategy? Both are reasonable of course, it is generally a good idea to adjust your strategy depending on where you think the economy is headed.

Personally, I find it hard to see a UK economy in the doldrums for many years or even a decade being good for house prices or asset prices in general for that matter.

skap7309

DaddyBear wrote: »

I thought the UK was racing out of this recession Hamish. Are you saying now that you don't think we are?

Dont expect an answer DaddyBear. Hamish tends to ignore the questions that predict his weaknesses, instead opting to spout loosely-based garbage.

Jonbvn

Entertainer wrote: »

Well that clinches it for me. In between charging 5% initial fee and 1.5% annual fee for the expert skill of losing people money over ten years, it is good to know that he has the very real moral hazard of a tracker mortgage in his life that will compel him into making perfect investment decisions in the future.

How the hell is a tracker mortgage a moral hazard? Since we have had such a mortgage for several years, should we start eating puppies?:rolleyes:

doire_2

HAMISH_MCTAVISH wrote: »

http://www.telegraph.co.uk/finance/comment/tom-stevenson/7003135/Interest-rates-the-lower-the-better.html

Low rates for years is by far the most probable outcome.

Worth noting that the author, a professional investment commentator for Fidelity and The Telegraph, has put his money where his mouth is and just taken out a tracker mortgage.
:beer:

To me that reads that the UK is in a right !!!!!!! mess and will take years to sort out! Not an ideal situatuon is it!

Glad you agree Hamish :beer:

HAMISH_MCTAVISH

Generali wrote: »

Hi Hamish. A question for you. Do you think that very low interest rates resulting from a sluggish British economy is likely to be positive for house prices overall or is it just positive for your investment strategy? Both are reasonable of course, it is generally a good idea to adjust your strategy depending on where you think the economy is headed.

Personally, I find it hard to see a UK economy in the doldrums for many years or even a decade being good for house prices or asset prices in general for that matter.

I think in this instance, you have to define what you mean by "good".

In an ideal world, we'd have far less debt as a nation, we would not have needed to borrow from future growth when the recession hit, growth moving forward would be unencumbered by the drag of the debt overhang. If such a neutral state existed, then I would expect both economic growth, and house price growth, to be far stronger than is likely now.

However, given the current circumstances, both economic growth and house price growth are going to be subdued. But that doesn't mean they will be negative.....

The supply and demand imbalance for housing in this country is severe. Within the next three months, it is already almost guaranteed that we will see double digit year on year HPI, some forecasters think this may even reach 15%. In a recession. With rising unemployment, rising reposessions, and with mortgage rationing in place, we have double digit HPI.

The bias, at current levels of population growth, and with current shortages of housing, is towards explosive levels of HPI.

The fact that the economy will be in the doldrums has to have an effect on prices, but given the restraints on raising interest rates, such wider economic sluggishness can only subdue, not reverse, HPI.

The reality is that affordability is far better than the long term average, 30% of net income versus 37%, unemployment will peak far lower than forecast, economic growth will be subdued, but it will still be growth. Population will continue increasing, housebuilding will take decades to catch up with the shortfall that existed in 2007, let alone the worsening shortfall created since then as completions fell off a cliff.

The bears are right to say that double digit base rates would stop HPI. And it's understandable that they now desperately cling to rate rises as the last great hope for their crash. The problem they face, is that the prospect of rates at 10% are vanishingly small. In fact, the prospect of rates at 5% are vanishingly small, given that the BoE has already stated 4.5% rates now would achieve the same demand destruction that 10% rates did 20 years ago. In this day and age we can control inflation with rates below 5%. And we have already established that rates of 5.75% were tolerable to the housing market.

There is almost zero prospect, therefore, of high rates killing off an HPI recovery, and whilst I don't think we can maintain double digit gains for long, growth of at least long term trend looks likely for quite some time.

As for my own "investment strategy" (if thats what you can call buying houses when you happen to need one to live in), low rates are good for me, obviously. As is HPI. But given Aberdeen is now within 1% of peak, and buying has beaten renting by around 40K for me so far, even if we now repeated the cycle we've just had for another 3 years, a double dip or W shaped event, I'd still be ahead versus renting, but by 80K instead of 40K today.