House market final props could soon collapse

DervProf

RenovationMan wrote: »

Anyway, back to the point...

As you seem to be distancing yourself from your statement "It's nice to sit back and watch others fret about the possibility of a base rate rise" and trying an unsubtle attempt to steer us onto a different subject, are we to understand that you now retract this statement and admit that it was ill conceived?

OK.

I'll admit that I might have worded the statement a little better, to demonstrate that I do not want to see everyone fret about the possibility of a base rate rise. Now you might be thinking that given your much repeated statements about your own financial situation, that what I typed (several months ago) was a dig at you. Well you'd be wrong. I don't think that you are the type of person that I'd like to see fretting about base rates rising (although your behaviour does seem to indicate that you are a bit concerned about rates rising). I`ve said before, and I'll say again, I don't think you have taken on an unduly high level of financial risk.

What I won't admit to, because there is nothing to admit to, is wishing ill on others for the sake of it (which I think is what you are accusing me of). I think that is pretty clear from my posts since I`ve been here, and people that know me outside this forum also know my views, and generally agree that they are reasonable, even if they don't agree with all of them.

DervProf

Phew, I hope that thanks from RM means that he is now seeing the side of the fence that I'm coming from. We may not wish to cross the fence, but maybe we'll meet near it.

I know why you attacked me on this point (and to be fair, you landed a couple of sharp jabs), but there was no way I was going to hit the canvas. The views I have expressed are honest ones, and in no way have I backtracked on them. Yes, I`ve had to clarify a few things, but they are my honest opinions, and not just typed to try and defend myself. I suffer from no jealousy of those that have "made it" (whatever the definition of "made it" may be). I do suffer from a strong dislike of greed, showing off and trampling on others for one's own benefit. It's not that I don't believe in capitalism, it's just that I'd like to see fairly controlled capitalism, which rewards hard work and entrepreneurial spirit, but not to the extent that it's dog-eat-dog and anything goes.

Flight2quality

It would only be a good thing if more people realised that rates have to go back up to where they are supposed to be. Most seem to think that this 300 yr low is around for some time yet.

RenovationMan

Flight2quality wrote: »

It would only be a good thing if more people realised that rates have to go back up to where they are supposed to be. Most seem to think that this 300 yr low is around for some time yet.

How long do you feel they will be around for?

StevieJ

Flight2quality wrote: »

It would only be a good thing if more people realised that rates have to go back up to where they are supposed to be. Most seem to think that this 300 yr low is around for some time yet.

Isn't 'supposed to be' at the level that benefits the economy?

ess0two

StevieJ wrote: »

Isn't 'supposed to be' at the level that benefits the economy?

Thats what he means innit,surely he would'nt want rates raised so that it potentially forced repossessions etc etc;)

treliac

I am curious about why there were so many repossessions during the 90s and yet there seem to be relatively fewer at the moment despite uniquely difficult times. Found the following.....

http://www.yourmortgage.co.uk/news/3627827

(Nov 2011)

Crown chief executive Eric Stoclet said many borrowers are in a perilous financial position, with little disposable income to manage a change in circumstances given inflation and low wage growth. He highlighted that very low interest rates and forbearance have kept arrears over six months at "manageable levels" of 1.2% of all mortgages, despite a sharp rise, and well below the peak of 3.5% in the ‘90s.

However, Stoclet warned that, while the previous downturn in the ‘90s lasted eight years, the current economic downturn "will last at least this long, if not longer", with interest rates eventually rising.

He said that the two cycles are very different, because the amount of debt borrowers have acrued is much higher than that seen in the 1990s. Stoclet said: "It is my view that over the cycle, arrears will outpace levels seen in the ‘90s as will possessions, which hit over half a million then.

"How will it happen? A spike and drop as we saw in the ‘90s or a long drawn out plateau as current data may be pointing to?
"The arrears situation is a difficult one looking forward." Stoclet warned that, with 40% of mortgages on an interest-only basis - and close to 75% of sub-prime loans - and 70% on variable rates, any change in interest rates will have a "massive impact" on borrowers.

He noted that household mortgage debt does not appear to be measurably dropping from its 2007 high of £46,700, despite an increase in savings levels.

DervProf

Flight2quality wrote: »

It would only be a good thing if more people realised that rates have to go back up to where they are supposed to be. Most seem to think that this 300 yr low is around for some time yet.

I think you are implying that rates should be, or are supposed to be at around 4-5%.

I don't think that would be a good thing right now. Having said that, I do believe that keeping rates this low for much longer might not be such a good idea. I think it will breed an "addiction" to low rates. The longer rates are at this level, the more the economy will come to rely on them. I have long been saying that rates should have been raised slightly during the middle of the housing boom (~2005) as a warning sign, and as a means of cooling things down a little. The BoE, at the time, said that they didn't consider house prices to be much of a priority when deciding on interest rate levels, and it was mainly inflation they were targeting. Today, it would seem that house prices, or at least the finances of the mortgage holder, that seem to be their priority. Inflation is suddenly something they can do nothing about, or at least don't want to. As such, we have interest rates that can't go much lower, leaving the BoE very little room to manoeuvre. It's arguable that the necessity for low rates today is a consequence of not using rates to help control in the rise in debt during the previous decade. To me, it seemed the economy was running at too fast a speed, but people were having too much fun to see that there was a very sharp turn ahead. I suppose it's human nature, if we're having a good time, why worry about the future ?

My advice to Merv & Co. would be to grow a pair, and raise rates a little at some time during this year, if there is a hint that the economy won't take a nose dive (accompany the raise with some reassurance that this isn't going to be the start of more increases, but a very, very gentle path to getting rates to a level where there is room to increase or decrease them as the economy requires). I don't think a small rise in rates would have a big impact on the economy as many would have us believe. I think it would start to give some credibility to the BoE, and give the borrowing public a message that "cheap" credit will not be around forever.

RenovationMan

DervProf wrote: »

My advice to Merv & Co. would be to grow a pair, and raise rates a little at some time during this year, if there is a hint that the economy won't take a nose dive (accompany the raise with some reassurance that this isn't going to be the start of more increases, but a very, very gentle path to getting rates to a level where there is room to increase or decrease them as the economy requires). I don't think a small rise in rates would have a big impact on the economy as many would have us believe. I think it would start to give some credibility to the BoE, and give the borrowing public a message that "cheap" credit will not be around forever.

Didn't the ECB try this and it was a disaster? They then had to reduce it back down again. I do wish this myth that BoE interest rates are low in order to save home owners was put to bed. It's this low in order to recapitalise the banks, they're the true winners of low BoE rates not a few people on BoE trackers.

Mid 2005 the average mortgage rate was 6.75%. The only time it dipped below 6% was Feb 2003 to Jan 2004, and even by then the boom was well and truly on its way. Raising rates even further in mid 2005 would have just closed the stable door after the horse had bolted.

wotsthat

DervProf wrote: »

My advice to Merv & Co. would be to grow a pair, and raise rates a little at some time during this year, if there is a hint that the economy won't take a nose dive (accompany the raise with some reassurance that this isn't going to be the start of more increases, but a very, very gentle path to getting rates to a level where there is room to increase or decrease them as the economy requires). I don't think a small rise in rates would have a big impact on the economy as many would have us believe. I think it would start to give some credibility to the BoE, and give the borrowing public a message that "cheap" credit will not be around forever.

I'm not sure why this would be anyone's advice.

How many threads have there been advocating an increase in rates over the last couple of years from those VI's wanting to 'punish 'debt junkies' as if that's a basis for economic policy? Yet here we are with inflation looking as though it's finally on a downward track despite these historic rates. That's a reflection of just how bad the economy is - just think what it would be like if rates had risen.

How increasing rates would have given some credibility to the BoE I just don't know. The ECB increased rates, then almost immediately had to reduce them - what did that do for their credibility? They looked like idiots.

The BoE isn't there to give messages to the borrowing public that cheap credit won't be available for ever. What's happened to personal levels of debt during the last two years? Clearly without the BoE providing a moral compass of rate rises you'd have expected it to have ballooned. Right?