What BOE interest rates will really cause financial disaster?

Thrugelmir

Old_Slaphead wrote: »

Surely the opposite is true - unless you mean 'easier' instead of 'better'

As interest rates rise your excess disposable income will repay less capital.

Hence take every opportunity to repay debt when rates are low.

Thrugelmir

Batchy wrote: »

its not better anyway! Thats a general statement

Its only beneficial if the rate you can get is better than the rate your being charged (taking into account tax effect)

For example, my gf is overpaying, Wrongly, into a mortgage, at only 1.24% NET when should could be paying into an ISA at 3.1% NET (as no tax charged) etc, etc, etc.

This is only a temporary situation which will be reversed in time. Reflecting the spread of rates available to both depositors and borrowers.

Over time the major finance houses will step back into line, offering broadly competitive rates. The exit from the credit crunch has meant the better capitalised, more prudent lenders eg HSBC can currently cherry pick remortgages from the NR and Skipton customers. Neither of which are able to currently offer competitve rates across the board to retain their customer base.

It will take time for the fog to lift and a more stable mortgage market return.

Thrugelmir

ultrawomble wrote: »

The BoE base rate was 5.25% in February 2008 and had dropped to 0.5% by March 2009. That's an average drop of ~0.37%/month, but Oct/Nov '08 saw a drop of 1.5%. Why should rises be slower and more gentle than cuts?

We've along way to go before personal, corporate and Government finances will be back in order. So a measured approach of gradual increases seems the better option.

The markets may well pre-empt any move by the BOE anyway. As tighter credit availability will mean that more attractive rates have to be offered to depositors.

wymondham

I think lots of newish homeowners would have severe problems with only a one or two percent, yet alone the selection to choose from in the poll. They have seen the current rate as 'normal' and planned accordingly...

nembot

Historically average interest rates, i.e. 4-5% would be disasterous for many apart from savers, who may just break even.

That alone suggests, we're still screwed economically.

StevieJ

Weren't BR at nearly 6% at the market height in 2007?

tomterm8

I think people don't really understand the relative impact of interest rates moves... moving from, say, 4% interest rate to 8% interest rate looks like a big move, while moving from 0.5% to 2% looks like a small move... but of the two, the second in relative terms is significantly more monetary tightening.

The move between 2008 and 2009 was an extraordinary monetary easing... when you combine it with the QE, it was pretty much unprecedented. Returning to some kind of orthodox monetary strategy is quite a high risk.

We are actually undergoing a monetary tightening right at the moment, as the impact of QE recedes, and money is drained out through the gradual repayment of debts. We are going from a policy effectively akin to a negative nominal interest rate, to a small positive interest rate. While the money supply is falling, I think that any significant change in the interest rate is rather risky.

I do think we are coming to the point where the second stage of the experiment is carried out; I always thought that coming out of the recession was the most dangerous point in terms of monetary policy.

nembot

The current interest rates are why the easily lead think things are far better than what they really are, due to the extra pieces of paper in their pocket with the queens head on it.

It's rather deceiving to be perfectly honest.

StevieJ

nembot wrote: »

The current interest rates are why the easily lead think things are far better than what they really are, due to the extra pieces of paper in their pocket with the queens head on it.

It's rather deceiving to be perfectly honest.

Pretty persuasive

nembot

That's very true Stevie and with some forward planning, the chances are it's the ideal opportunity for many to grant themselves that extra financial freedom if/when things change.

The real issue is can the credit generation use this to their advantage, in a similar way historical financial problems were inflated away - or have they just spent that extra cash?

Only time will answer that question.