Interest rates 'may hit 8pc' in two years

macaque_2

Turnbull2000 wrote: »

Interest rates at that level would destroy the housing market. It simply won't be allowed to happen. Rates will be 2% at best in two years time IMO.

A healthy market is one with good turnover and that does not distort the economy. At the moment we have one of the most distorted housing markets in the world.

High house prices have:

1. Reduced turnover to historically low levels.
2. Excluded ownership to a high percentage of people under 40
3. Forced people to have unbalanced investment portfolios
4. Starved industry of investment

Interest rates at 8% with a much lower purchase prices would create a much healthier housing market and a more balanced economy.

I have corrected the statement in your post as follows:

"Interest rates at that level would [STRIKE]destroy the housing market[/STRIKE] restore the housing market but destroy my windfall profits".

Really2

Generali wrote: »

@Really2 - great post. Absolutely spot on IMO.

Cheers Gen.:o:D

On another point while still thinking last night my mind was drawn back to a thread about a month ago about how previous generations now retired or retiring got 118% more out of the welfare system on top of what they put in. Also they had a massive growth period, stable jobs, HPI etc, etc, froth, froth.

I am under no illusion in life in general the biggest savers in terms of money will be the older generations because in life you go form.

Saver (pre mortgages) - Debtor (mortgage) - Big saver (mortgage free).

It is obvious the people mortgage free will have been able to save the most (no real housing costs.)
So basically when people go on about savers predominantly they are talking about the generations who saw all the above and are now that not bad off (well in some of the forums eyes) the retired or soon to be retired.


I hold nothing against them and perhaps they are not the ones frothing so much about this is because they have lived through busts before and have savings to get them through.
I presume they are far more concerned about their grand children not being able to find work and their children support those children will in to adult hood than the interest rate not being so high.

This forum makes me laugh sometimes it goes from moaning about the old getting more out of the system and current generations paying for them, to then saying we should give them additional support on their savings.
Some should make their mind up about if they feel begrudged by people who lived through the last 65 years and want their cash, or if they want to give them more cash to support their savings.:)

I think it is just life, we should just get on with the cards we are dealt. No one is being punished or rewarded things are like they are because of deep routed problems.
If people are not happy about it their are things they can do feel secure and save, or take a risk and invest. Personally I save and get 0.5% in my offset so yes my mortgage is cheap but I also accept I get f' all off my savings.
Thats life, and thats where we are at the moment.

Barnetbear

The "it won't be allowed to happen" brigade -
how old are you, 12 or something?

It has already happened at least twice before in decades past when you were in Pampers.

Are you suggesting the UK Govt now has a magic money tree with no consequences so they can avoid doing what the wiser economic (wo)men of generations past had to do? Is that your old friend, QE? Do you not know why sane politicians' knees wobble when they mention using QE? Graveyards are littered with people who thought they could manage dangerous things safely. In this case, they know things are so very bad that the QE can't make things that much materially worse and it might just might buy some breathing space, but that is the only reason they are using it IMO.

Really2

Barnetbear wrote: »

The "it won't be allowed to happen" brigade -
how old are you, 12 or something?

It has already happened at least twice before in decades past when you were in Pampers.

15+ years is a very long time to wear nappies IMHO.:)

Also for that period the term is nappies (terry towels) not pampers.;)

I think most people would rejoyce seeing a repeat of the 70's than what is likely to happen IMHO. Personally I cant see us entering a stage of massive expansion TBH.

Barnetbear

Really2 wrote: »

15+ years is a very long time to wear nappies IMHO.:)

I hear some specialist ladies in the City might report otherwise.

Must also point out, other brands are available.

julieq

So we come back to the question that Graham never answered. Where does the money to pay above inflation returns on savings rates come from exactly? (Incidentally, I love the "better than sleeping pills" comment, you do get this every time Graham is stuck on a point of detail).

As has been discussed in this thread, it comes from the banks investing the money elsewhere. And it was pointed out that this was "low risk" investments, so let's accept that definition for the moment.

So what do we think is used to back a significant portion of "low risk investments"?

That's right. Lending for housing. Well done.

So if there was a significant collapse in the housing market due to the rather overblown headline claims, savers wouldn't get returns either, they'd be hit by one of these famous double whammies of increased default and lower lending. And a great many people would lose their jobs, which would mean that house prices would be largely irrelevant anyway.

It's often claimed that actions needed to prevent economic collapse are unnecessary. To understand why they are necessary it's worth considering what an economic collapse would actually mean: you can't take one part of a closed system in isolation. And anyway, apocalypse apart, it won't happen. We're on a slowish drag back to recovery, I personally expect a slight dip over the next 8 months, but it's an oscillation rather than the precursor to the end of the world.

Note also incidentally that the headline claim is an "up to" latched onto by a lazy journalist, and we haven't the full error range or metholodogy used so we can't investigate why the claims were made. To get 8% at 0.25% a month will take almost the entire period, and for anyone believing this they ought to borrow AS MUCH AS POSSIBLE at low fixed rates now to invest at higher savings rates, there would be a massive arbitrage opportunity.

But it isn't going to happen. All it will allow is a further opportunity for the terminally risk averse to sit on their hands for a few more years, because the fact there is a possibility rates will increase to very high levels overrides the numerical likelihood of it actually happening.

bendix

i love this notion that 'it won't be allowed to happen'. These posters seem under the illusion that governments have a magic wand and can control interest rates. They can't - they're not powerful enough to influence market forces.

They might be able to exert (limited) political pressure on the Bank of England as its uses the OCR to set base rates, but - as we are seeing at the moment - there is a growing disconnect between OCR and 'real interest rates', and there is nothing the government can do to change that.

doire_2

Another cracker from Silbey. Posted at 1.14am. Maybe he was still partying? I wonder what illegal substance he was smoking when he posted it?

NOT GOING TO HAPPEN....
23.08.10, 1:14am

The government will not allow rates to rise. Say what you want but it's not going to happen. We will have under 2% for at least 3 years. That's what homeowners need and we are the ones who pay for everything. Simple.

• Posted by: Sibley • Report Comment

Graham_Devon

julieq wrote: »

(Incidentally, I love the "better than sleeping pills" comment, you do get this every time Graham is stuck on a point of detail).

Thats weird. As it's the first time I think I have ever said it

Do a search, and see how many times I have actually said it

Oh, once. Making up things as you go along again Julie me dear?

Really2

Graham_Devon wrote: »

1) All that stuff about risk, yet don't seem to have cottoned on to the fact that buying a house on a mortgage is exactly that. But no!!

2) Save the homeowner = good. Savers getting a half decent rate = bad, they need to take risk if they want anything.

1) I think I do know that taking on any debt is a risk jocky, why do you think I am getting rid of it ASAP. Risk of default on debt is very serious IMHO and that is why I have taken as many steps as possible to cover my self should anything happen.

2) I have said nothing about saving owners being good, and made it perfectly obvious of what I thought about the base rate in the post you responded to. Saving is not about reward simple, it is not investing.
If I save an egg for tomorrow in my fridge, it will not be 2 eggs tomorrow. Saving is basically keeping what you have (in real terms).

I merely pointed out before, owners and renters get similar help. I for one hope I will never need it.