So will interest rate rises have very little impact?

Graham_Devon

phil_b wrote: »

I don't think I've seen anyone say that rate rises wouldnt have an impact.

You might now.

HAMISH_MCTAVISH

Graham_Devon wrote: »

Theres still general inflation though, imported or not.

And yes, interest rates can help, before you tell me they can't as its all external. By raising the value of the pound (which is always ignored).

Yes Graham, you could raise rates and destroy demand and economic growth to combat imported cost-push inflation. Or to combat inflation caused by the VAT rise which is what we currently have, (CPI-Y which strips out VAT is below 2%).

But then you'd tip the country back into recession and have to drop rates again to pull it out.... Not to mention lower tax revenue for the government, defeating the object of raising the VAT to begin with, which is what is causing the inflation.

A bit pointless, don't you think?

purch

By raising the value of the pound (which is always ignored).

Yes it is, because it wouldn't happen.:eek:

If it was a simple as just finding the country with the highest Interest rate, then everyone could make a fortune !!!!

Everything being equal, then having a higher interest rate level will have a positive effect on the currency.

But that wouldn't be the case, if the UK unilaterally raised rates.......would it ???

Graham_Devon

HAMISH_MCTAVISH wrote: »

Yes Graham, you could raise rates and destroy demand and economic growth to combat imported cost-push inflation. Or to combat inflation caused by the VAT rise which is what we currently have, (CPI-Y which strips out VAT is below 2%).

But then you'd tip the country back into recession and have to drop rates again to pull it out.... Not to mention lower tax revenue for the government, defeating the object of raising the VAT to begin with, which is what is causing the inflation.

A bit pointless, don't you think?

It's all very simple, isnt it?

Don't raise rates....everything will be ok. We'll enjoy growth and high demand.

Rise rates, and the economy will be back in recession, destroy demand and economic growth....but sidenote: will have no affect on house prices, just everything else.

All so simple.

HAMISH_MCTAVISH

Graham_Devon wrote: »

It's all very simple, isnt it?

It really is..... unless you're trying to muddle it up.

Don't raise rates....everything will be ok. We'll enjoy growth and high demand.

And then when the demand and growth is causing demand-pull inflation, raise the rates.

Rise rates, and the economy will be back in recession, destroy demand and economic growth....but sidenote: will have no affect on house prices, just everything else.

It wouldn't have "no effect on house prices", but it would be a far smaller direct effect than the bears postulate.

The effect on the wider economy however, would be catastrophic. Which would tip the country back into recession. Which would then have a bigger effect on house prices.

But the chance of that happening is virtually zero, because it would cause deflation and thats precisely what the bank is trying to avoid.

All so simple.

Indeed.

Graham_Devon

I've just been searching for an article about interest rate rises, but come across something completely different, amused me highly.

Has predictions from 2007 from massive VI's, including Sarah Beeney, Estate Agents and BTLs.

Found it as it mentioned interest rates. Apparently in 2007, repo's went up 30%. This was blamed on the rising interest rates (1.5% total rise, and 30% higher repo's, yet this time, its different). Yet people now say we didn't have problems then....oh, yes, we did.

http://www.mirror.co.uk/advice/archive/homes/2007/11/18/so-are-house-prices-set-to-crash-115875-20117767/

Have to read the comments from the housing bulls though. "crash...no, there won't be a crash, you silly people!".

Percy1983

andykn wrote: »

And even if base rates are at 4%, most people won't pay more than 6%, the same as when they took out the mortgage in the first place.

This is where my problem is. I agree with the the point here but the rates on SVRs are the problem.

Right now you might get an SVR which is base + 4.5% to give 5%, is the base is 4% you will get base + 1% to get 5%.

Then base rates go to a 'normal' 5%, to which If I buy now I will end up with an SVR of 9.5% yet if I buy when rates are 4% my SVR will go to 6%.

Yes the above isn't an exact science but right now we have to agree that SVR's have the a larger than normal margin on them.

andykn

Percy1983 wrote: »

This is where my problem is. I agree with the the point here but the rates on SVRs are the problem.

Right now you might get an SVR which is base + 4.5% to give 5%, is the base is 4% you will get base + 1% to get 5%.

Then base rates go to a 'normal' 5%, to which If I buy now I will end up with an SVR of 9.5% yet if I buy when rates are 4% my SVR will go to 6%.

Yes the above isn't an exact science but right now we have to agree that SVR's have the a larger than normal margin on them.

If base rates rise SVRs won't necessarily follow. Other variable rates (base + x%) are for shorter terms than base rates are likely to rise over anyway. As it is, very few people pay SVRs in normal times, deals are always there to be had.

Turnbull2000

All irrelevant, because base rates are not going to rise in any meaningful manner for a long time. The housing market is considered too important.

moneysaver84_3

Percy1983 wrote: »

I am only getting 3% on my saving right now which is a bit annoying too, why should my savings suffer to bail the overstetched out?

Totally agree with you, i'm living at home with parents because although I could probably just move out (leaving 100 quid a month to live on), I would be seriously overstretching, in the mean time why should sensible savers be punished for people who have over borrowed in the first place and paid over the odds prices :mad: