When interest rates to go back to normal many more distressed sellers?

buglawton

Folks locked into these low tracker rates have no incentive to ever sell up - rather do anything else than change job (move) or upgrade house. All helping UK's moribund economy (!)

shortchanged_2

PaulF81 wrote: »

Only for those who havent secured cheap lending already. My mortgage is tracking BOEBR +1.99% for the next 23 years. That means I have cheap lending for the next 23 years.

Well if base rates went above 4% during that time I wouldn't say you necessarily would have cheap lending, particularly if you took a rather large mortgage out in the first place.

buglawton

Interest rates are low currently as a matter of government policy but this is not admitted by a supposedly independent Bank of England. Mervyn King is supposed to write an explanatory letter to the PM if the UK misses it's Inflation Target, itself supposedly 2%. Missed it 3 year running now methinks.

The real siltation is: the PM needs to write a letter to Mervyn pleading that he does not try to hit the Inflation Target. To hit that, base rates need to be about 3% not 0.5%. Except that the PM doesn't have to write a letter: Instead there's an unspoken Gentlemen's Agreement not to frighten the horses and just let things slide.

A 5% inflation rate is convenient - it allows real salary deflation every year. The unwanted side effect however is that is is a bonanza for all monopoly suppliers - e.g. energy, transport, and why has my car tax disc gone up 8% in one year? The others side of this side effect howevr is a sharp cut in discretionary spending and loss of value in pensioners' savings.

So the unspoken policy is inflation rolling along at around 5%.
An honest government would admit as much, this being a 1970's style attempt to avoid high unemployment.

Interest rates will not go up more than a token amount until after the next 2 elections IMHO, so long as this unspoken policy continues.

If there's one honest the thing the government could do it would be to give a tax free allowance to all the interest one earns on savings etc, up the rate of actual inflation.. So for example, if inflation were 5% like now, then if you (theoretically0 got a 6% savings deal somehow, you'd only pay tax on the 1%. Most people's savings interest would become instantly tax free. This is because it's the money supply that the government/Bank of England create that result in the inflation, as matter of the above mentioned unspoken policy.

RenovationMan

buglawton wrote: »

Folks locked into these low tracker rates have no incentive to ever sell up - rather do anything else than change job (move) or upgrade house. All helping UK's moribund economy (!)

Many mortgages are portable these days, so allow you to kee the exisiting rate when you move. Only the additional financing (if any) will be on a different rate. Interestingly, this makes it even more a disincentive for people on low trackers to make mortgage overpayments rather than banking their windfall.

buglawton

Hehe my bank will not be offering portability since the rate is just so darned low... but I'll check anyway thanks.

PaulF81

shortchanged wrote: »

Well if base rates went above 4% during that time I wouldn't say you necessarily would have cheap lending, particularly if you took a rather large mortgage out in the first place.

And when do you predict that will happen? Bearing in mind we have 250 bill in QE to unwind and a halving of the overall money supply to come before they even think about rate rises?

I will have paid the mortgage off in 8 years, so I cant really see rate rises a problem.

shortchanged_2

PaulF81 wrote: »

And when do you predict that will happen? Bearing in mind we have 250 bill in QE to unwind and a halving of the overall money supply to come before they even think about rate rises?

I will have paid the mortgage off in 8 years, so I cant really see rate rises a problem.

Well I was basing my statement on the fact that you said you will have a cheap mortgage for the next 23 years. And there is a good chance interest rates may well go above 0.5% in that time.

PaulF81

shortchanged wrote: »

Well I was basing my statement on the fact that you said you will have a cheap mortgage for the next 23 years. And there is a good chance interest rates may well go above 0.5% in that time.

They very well may. But does anyone really expect 4% rates in the next decade? I can pay up to BOEBR up to 9% by the way. It would be a pain, but we could just manage. The balance of probabilities is we are part way through a lost decade, and lost decades are characterised not by rates going through the roof.

shortchanged_2

PaulF81 wrote: »

They very well may. But does anyone really expect 4% rates in the next decade? I can pay up to BOEBR up to 9% by the way. It would be a pain, but we could just manage. The balance of probabilities is we are part way through a lost decade, and lost decades are characterised not by rates going through the roof.

You may well be right. But very few governments have shown the ability to manage the economy steadily over a medium to long term. There always seems to be a cycle of boom and bust.

When the UK economy does eventually start to recover you may well find that interest rates rise quite sharply in order to combat the likes of wage inflation.

PaulF81

Wage inflation? Ha ha ha! Where is that going to come from? Have you seen what we are competing against in China? Wages have a long way to fall before they go up and the government know it.