People BEWARE 6% IR next year looking a real possibility

UK007BullDog

Dont forget that the last interest rise was not just because of the spending we do but also about the cost of wars we are involved in (UN peacekeeping, directly and indirectly) which needs paying. Having soldiers deployed in every corner of the globe and some on active duty in Afghanistan and Iraq does cost immense money.

The government does not really want to harm the housing sector as it gets a massive amount of revenue from it (stamp duty, inheritance tax etc.).

Personally I think there will be another rise this year. Not sure about next year though.

I think if the interest rate starts to creep up a lot of people will go down the fixed interest route. The question then would be 2, 3, 5 or 10 years going fixed. Then one really has to have a good think about what one wants to do in the future if going long term fixed. But then one knows, can budget and hopefully start overpaying to reduce the mortgage quicker.

PoorDave

meanmachine wrote:

That's very telling logic.

So low interest rates aren't temporary, they're permanent. They have to be otherwise very high house prices are temporary - and we all know that's nonsense.

Hmmm. Something doesn't quite add up there.

I've been reading lots of articles recently about how Chinese goods are starting to rise in price - by 5-10%.

That doesn't sound too bad, until you realise that falling import prices have been off-setting massive domestic inflation.

Falling Chinese prices ARE temporary, otherwise they'd hit zero before long.

Let's be honest, when you can buy a school uniform for a fiver, that's a good thing. But to keep inflation down, that ultra low price has to keep falling - and that's impossible.

My point was that no external effect on interest rates can be classed as artificial

Martinslovechild

Unfortunately, the key measures of inflation - RPI (retail price inflation), RPIX (retail price inflation excluding mortgage interest payments) and CPI (consumer price index), do not monitor all items on sale in shops; the Sunday Times' economic editor, David Smith, consistently reiterates this very fact. The BOE itself is concerned about the impact of University tuition fees which are to be included in inflation figures this year for the first time ever.

Most people are now aware that the BOE no longer targets RPI or RPIX, but CPI, which doesn't even take into account House Price inflation. In fact, as measures of inflation go, CPI is a pretty bad measure of the cost of living - for example, it doesn't include housing and only about half of it is service-related. So, it acknowledges that you can purchase a DVD player for £19 but completely ignores the fact that a ladies' haircut in a half-decent salon is £60 and a babysitter in London now costs more than £10 per hour. In fact, it's pretty common knowledge that where the prices of a lot of electrical items have actually fallen over the past few years, service costs on the other hand have increased by a lot more than inflation.

Stable prices (and therefore low inflation) have in fact had more to do with the rise of low-cost manufacturing in Asia. Clearly, this will not last forever. The cost of the average house in America is today just $1,000 more than 12 months ago - that's actually negative once you take inflation into account. Australia has already entered a House Price Crash with properties there now on the market for up to 30% less than their price at peak a couple of years back. There are rumours that the recent house price increases here in the UK, mainly in London and the South-East, have already come to an end, after just a few months. Thinking laterally, It's ridiculous to believe that house prices would continue to accelerate because we're now so off-trend of the affordability line, something must give.

My personal belief is that we'll see a 0.25% increase in November and two further increases in the first half of next year, taking us to 5.5% by next Summer. Where it goes from there depends on lots of factors - it's actually too early to say, but my gut feel is that houses will be up to 10% cheaper in June 2007 after allowing for inflation, and this will be followed by 2-3 years of house price stagnation. This is a good thing - it offers a genuine opportunity for first-time buyers to get into the market for the first time since 2002 and will allow those who want to move to bigger properties to do so since the differential is less.

richgirl

natwill wrote:

Does anyone think they will go higher than 6% though?...just interested...I could manage 9% but at 12% I would be stretched too far loking at the mortgage calculators

6% looks like the max target at the moment, though if disaster hits, say bush decides to attack iran, and the iranians retaliate by blocking the straits of hormuz then oil could more than double and so would inflation and interest rates not far behind.

mystic_trev

richgirl wrote:

6% looks like the max target at the moment, though if disaster hits, say bush decides to attack iran, and the iranians retaliate by blocking the straits of hormuz then oil could more than double and so would inflation and interest rates not far behind.

Until recently I thought this was fantasy - but now? I'm not sure. Bush (like Blair) is greatly disliked by the electorate, but unlike Blair is only allowed to serve two terms of office. It's generally observed that a US President makes most key decisions during the second term. I wouldn't be at all surprised to see him attack Iran and Blair to go along with him!

lynzpower

trev,

Id be very surprised if blair takes us into Iran. very surprised indeed.

Maybe 18months ago, but not now.

Someone give me a hat to scoff if this happens

Lynz