Interest rates to rise again

ManAtHome

Quite right George, increasing house prices keep the debt-wagon rolling for a few more years. However, these increases and the increasing difference between inflation of essentials and non-essentials is starting to bite. We seem to be in the position where wages can't go up much without IRs following, but consumption has to...

talksalot81

Gorgeous_George wrote:

Why they would wish to keep house prices under control is the big question.

Because if they dont, eventually no one can afford them therefore there is very little movement, there is no one earning out of it all, the government included. Keeping the system sensible may mean lower short term profit, but it guarantees sustainable long term outcomes.

BobProperty

Gorgeous_George wrote:

They could do so very easily. Increase interest rates when prices start to rise and decrease them when prices fall. Alternatively, increasing income tax would be even more effective.

So the increases in interest rates in the early nineties caused a crash and that's what you call control? Interest rates are a "blunt instrument" and have a fair bit of "drag". Chancellors have rarely got it right and certainly any effort re the housing market I would say have had very little influence.
As for income tax, high rates just make people avoid it. It doesn't stop them buying houses, the current tax take proves that.

talksalot81 wrote:

Because if they dont, eventually no one can afford them therefore there is very little movement, there is no one earning out of it all, the government included. Keeping the system sensible may mean lower short term profit, but it guarantees sustainable long term outcomes.

But they don't. The market takes care of the "eventually no one can afford them". You might not like how it happens but it will happen.

dougk_2

I'm not conviced a drop in house prices will do anyone any good apart from FTB's - Why you might ask..... well

As above the government do well out of higer house prices - VAT on services, Stamp Duty, Inheritance tax, Council Tax etc etc. Therfore if prices drop then EVERYONE will be taxed higher to cover this shorfall in one way or another.

So perhaps high house prices are good for the majority of people?

talksalot81

BobProperty wrote:

But they don't. The market takes care of the "eventually no one can afford them". You might not like how it happens but it will happen.

Where is your confusion. You rightly state that they dont. So the logical consequence is that prices will continue rising, the difference between price and income will get wider until your income becomes all but irrelevant for most people so they cannot purchase. That is HOW it would happen... but it cant continue to happen once that point is reached - else where is the money coming from to fuel further growth?!

BobProperty

Gorgeous_George wrote:

Why they would wish to keep house prices under control is the big question.

talksalot81 wrote:

Because if they dont, eventually no one can afford them therefore there is very little movement, there is no one earning out of it all, the government included. Keeping the system sensible may mean lower short term profit, but it guarantees sustainable long term outcomes.

My only confusion is you first implying that the government does try to keep house prices under control then saying:

talksalot81 wrote:

Where is your confusion. You rightly state that they dont. So the logical consequence is that prices will continue rising, the difference between price and income will get wider until your income becomes all but irrelevant for most people so they cannot purchase. That is HOW it would happen... but it cant continue to happen once that point is reached - else where is the money coming from to fuel further growth?!

Guy_Montag

The BoE has to be aware of house prices etc, but their aim is to keep CPI at 2%, right now, they are overshooting it substantially, with a sudden & marked rise last month.

Despite the early sales (did we not have those last year?) my guess: +25bp in January.

Everything I can see is pointing to it, M4 money supply at 14%, unemployment down, CPI up, wages up.

realwildone

Sorry folks I don't see rates rising above 5%, the MPC want to control inflation, house prices are peripheral. The current rate of inflation is expected, it will start to come down next year quite possibly negating any requirement for further increases.

Rubbish. Two interest rises are already priced in. What exactly do you see coming down in price. Who is going to settle for a 2% increase in wages in January when the real rate of inflation is more like 10%.

This government has to go....the sooner the better.

talksalot81

BobProperty wrote:

My only confusion is you first implying that the government does try to keep house prices under control then saying:

Your quotes answer your query.

I responded to someone with the reason why the government would WISH to keep prices under control. This was also in response to a post suggesting why they would NOT wish to keep them under control. At no point did I say that they actually did it... because I know they dont!

united4ever

I'm trying to decide between a fixed rate or variable mortgage. If the interest rate went up to 6 or 7% I think I'd be ok but if it became over 8% in the next few years i'd be struggling - hence I'm considering a fixed rate - do you think interest rates could hit 8% in the next few years?