Interest rates go up! Now 4.75%

Viking_Man

If you look at the dramatic way that interest rates have risen elsewhere, the Bank of England has been fairly soft by comparison. There have been (count 'em) 17 increases in rates in the US - rates are the highest for 5 years. In Europe - the last time rates were this high was 5 years ago in 2001. Japan just raised rates for the first time in 6 years. Here in Britain, however, we've not been nearly so forthright - now we're back to where we were only a year ago. I think the reason for this is that uniquely high fuel duties in the UK have cushioned us from the effect of increasing base prices on fuel - UK fuel prices have increased in price proportionately less than in other countries because so much of the cost here is made up of taxes, which have not been raised. So it has not been necessary to raise rates so dramatically here in the UK. But we are behind the global cycle on interest rates - we can expect another rate rise to get us back into sync.

mi-key

Not sure if my maths are completely correct here ;0)

But was looking at the figures yesterday, on a house around £200K the monthly payment ( not taking into account future rises or falls in the rate ) would go up by approx £50, over 25 years this comes to £15,000, meaning in real terms the £200K house is now costing you around 7% more in total than it would have done had you got the mortgage at a rate 0.25% lower.

To me, this would point to the house now really being worth 3.5% less than it was two days ago if you are working out what it really costs you. ( Assuming roughly that the price you agree to pay for the house is about half what the total cost of the mortgage over the 25 years is, the other half being the interest )

For sellers who are struggling to get the figure they want for their houses, e.g. not getting any offers close to the amount, then they are going to be struggling even more now.

asandwhen

I think that this will be the last rate rise for a while - Dont forget the uk was the first to start raising interest rates a couple of years ago we then stopped at 4.75% the world stood by and watched on as uk interest rates went up - this was then halted as the amount of rises shook the retail sector - Due to energy prices infaltion has risen a touch thus the need to slightly change interest rates - in my opinion this will be the only rise energy prices (gas and electric) will come down next year (british gas are confident of this) so I feel interest rates will stay around this rate for the next few years wont go higher than 5.25 and no lower than 4.25. The economy is in good ish shape - House prices though will be hit slightly by this rise for the next few months but next year if rates stay this way house prices will nudge slightly up. I think for those of you waiting for a crash you will be dissapointed although you will be better of saving for the deposit for now as house prices are not going to do anything for the next couple of years.

ABOVE IS MY OPINION OF THE SITUATION I WILL LOOK BACK IN A YEAR OR SO TO SEE IF I AM CORRECT.

UK007BullDog

There might be another rise just before Christmas to stop the wild spending spree people will have with their Credit Cards.

I am 70% sure of that ;-)

mi-key

I wouldnt be surprised if there is another 0.25% rise before the end of the year - especially if the rise now doesnt have as much of an effect as they are hoping.

I think a lot will depend on what happens with house prices, if they do drop slightly then this will be good, if they dont then lots arent going to sell as it'll be even more expensive for FTB's to get onto the property ladder.

asandwhen

mi-key wrote:

I wouldnt be surprised if there is another 0.25% rise before the end of the year - especially if the rise now doesnt have as much of an effect as they are hoping.

I think a lot will depend on what happens with house prices, if they do drop slightly then this will be good, if they dont then lots arent going to sell as it'll be even more expensive for FTB's to get onto the property ladder.

This rise has got nothing to do with house prices this is because of the slight rise in inflation - 0.5% above what the chancellor was expecting I would say this is likely to come down anyway as fuel and energy prices come down which they are expected to do.

meanmachine_2

asandwhen wrote:

This rise has got nothing to do with house prices this is because of the slight rise in inflation - 0.5% above what the chancellor was expecting I would say this is likely to come down anyway as fuel and energy prices come down which they are expected to do.

Wrong, wrong wrong.

This has nothing to do with current inflation levels. The Bank sets rates now to control prices 18 months hence.

Fuel and energy prices have gone up because there is too much money in the world economy. That, combined with soaring demand in the East.

Oh, and with cheap imports no longer acting as a counterweight to soaring domestic inflation I really don't see how inflation is ever going to be pulled back.

But who knows?

F_T_Buyer

asandwhen wrote:

I think that this will be the last rate rise for a while - Dont forget the uk was the first to start raising interest rates a couple of years ago we then stopped at 4.75% the world stood by and watched on as uk interest rates went up - this was then halted as the amount of rises shook the retail sector - Due to energy prices infaltion has risen a touch thus the need to slightly change interest rates - in my opinion this will be the only rise energy prices (gas and electric) will come down next year (british gas are confident of this) so I feel interest rates will stay around this rate for the next few years wont go higher than 5.25 and no lower than 4.25. The economy is in good ish shape - House prices though will be hit slightly by this rise for the next few months but next year if rates stay this way house prices will nudge slightly up. I think for those of you waiting for a crash you will be dissapointed although you will be better of saving for the deposit for now as house prices are not going to do anything for the next couple of years.

ABOVE IS MY OPINION OF THE SITUATION I WILL LOOK BACK IN A YEAR OR SO TO SEE IF I AM CORRECT.

Remember elec and gas are directly linked to oil. Oil prices are the key, and I can't see them dropping for a long time yet. Remeber what certain market commentators were saying?

Oil at $30: Prices will fall
Oil at $40: Prices will fall
Oil at $50: prices will fall
Oil at $60: prices will fall
Oil at $70: prices will fall
Oil at $80: (To be continued...)

My bet: Oil to hit over $85 by year end. $100 oil is in sight by late summer 07.

Also, the inflation from oil we are feeling at present is from two years ago, so approx $45 oil. We have yet to feel the impact from plus $70 oil.

As for the housing market, and most FTBs are buying fearing they will miss out, or BTLers who are in it for capital gains (countless threads on here show this) will not be as eager to buy. Hence HPI will slow, and stagnate like the market did between summer 04 to summer 05. Another rate rise will knock it dead, and things will snowball. Another rise after that and it's the 90s all over again.

Xbigman

mi-key wrote:

Not sure if my maths are completely correct here ;0)

But was looking at the figures yesterday, on a house around £200K the monthly payment ( not taking into account future rises or falls in the rate ) would go up by approx £50, over 25 years this comes to £15,000, meaning in real terms the £200K house is now costing you around 7% more in total than it would have done had you got the mortgage at a rate 0.25% lower.

To me, this would point to the house now really being worth 3.5% less than it was two days ago if you are working out what it really costs you. ( Assuming roughly that the price you agree to pay for the house is about half what the total cost of the mortgage over the 25 years is, the other half being the interest )

For sellers who are struggling to get the figure they want for their houses, e.g. not getting any offers close to the amount, then they are going to be struggling even more now.

You can view it this way but I think it would be misleading. A 200k house will still be worth 200k but it will cost 207k to buy it. But then again, inflation is creeping up which should mean higher payrises, meaning faster mortgage cost erosion. It is possible to argue this is a good thing!

Bottom line, each person or family will need to look at their own financial position now. I suspect there will be essentially two groups.
A. Those who are unaffected or positively effected (like me) because we thought about this months ago.
B. Those who are negatively effected because they should have thought about this months ago.
Regards



X

*Sparkle*_3

I just got a fixed rate mortgage last month so i'm happy.