Interest Rates could hit 6% very soon!

phlash

http://newsvote.bbc.co.uk/1/hi/business/6221196.stm

Looks like 5.75% in July, just as this thread was saying.....the path is set for 6%.

mystic_trev

LONDON (Reuters) - Borrowers and lenders need to be cautious because excessive leverage has been the common theme of previous financial crises, Bank of England Governor Mervyn King warned on Wednesday.
In a speech to the annual Mansion House dinner for London's financial elite, King also repeated underlying inflationary pressures have been disguised by volatile energy prices, suggesting he still sees the need for higher interest rises.

http://uk.reuters.com/article/businessNews/idUKL2090758320070620

phlash

http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=464610&in_page_id=1770

Looks like a definate rise next Thurs. The swap rates and LIBOR are factoring in 6.25% in the months to come.

Wasn't that long ago that rates were 4.5%. Inflation is alot more stubborn than they could have imagined. For those that think that this could all come under control, start doing some research about the carry trade, and the recent news from that.

Here's a simplified analogy to put some figures on this:

Jul 2006: Couple could borrow £100,000 for £561.99 @ 4.5% over 25 years.
Jul 2007: Couple could borrow £84,199 for £561.99 @ 6.25% over 25 years.

In one year the same couple can borrow £16,000 less with which to buy a house, they simply cannot offer as much to the vendors.

In the mean time the original couple have seen their payments go from £561.99 to £667.45 per month.

Many will say that alot of people are on fixed rate mortgages, you are right, is all it means is that the original couple's exposure to the increase is delayed for 2/3 years, then it may hit even harder if interest rates managed to get to 7% even 8%, who knows, what about 15% again.

Generali

phlash wrote: »

http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=464610&in_page_id=1770

Looks like a definate rise next Thurs. The swap rates and LIBOR are factoring in 6.25% in the months to come.

Wasn't that long ago that rates were 4.5%. Inflation is alot more stubborn than they could have imagined. For those that think that this could all come under control, start doing some research about the carry trade, and the recent news from that.

Here's a simplified analogy to put some figures on this:

Jul 2006: Couple could borrow £100,000 for £561.99 @ 4.5% over 25 years.
Jul 2007: Couple could borrow £84,199 for £561.99 @ 6.25% over 25 years.

In one year the same couple can borrow £16,000 less with which to buy a house, they simply cannot offer as much to the vendors.

In the mean time the original couple have seen their payments go from £561.99 to £667.45 per month.

Many will say that alot of people are on fixed rate mortgages, you are right, is all it means is that the original couple's exposure to the increase is delayed for 2/3 years, then it may hit even harder if interest rates managed to get to 7% even 8%, who knows, what about 15% again.

What you say is correct. However, if BTL is driving HPI then what matters is sentiment as a lot of people seem happy to get into that business despite negative cashflow.

King_Of_Fools

Generali wrote: »

What you say is correct. However, if BTL is driving HPI then what matters is sentiment as a lot of people seem happy to get into that business despite negative cashflow.

Exactly, sentiment is key. However, as soon as these negative cashflow investors start seeing negative asset growththey will sell up as quickly as they can.

Generali

King_Of_Fools wrote: »

Exactly, sentiment is key. However, as soon as these negative cashflow investors start seeing negative asset growththey will sell up as quickly as they can.

Well that's when any reversal of HPI or even stagnation will be interesting.

These BTL chappies claim to be '...in it for the long term'. Perhaps they will be, perhaps they won't. Certainly, I can see a situation where they will be very reluctant to crystalise losses.

The truth is that we've not had a rocky time in the housing market since BTL became a phenomenon. Nobody knows what'll happen when the economy turns bad, as one day it will.

My gut feeling is that alot of people will get their fingers burnt very badly. How that spills over into the 'real economy' of hairdressers, engineers and humble bankers remains to be seen.

nelly_2

Aparently a week is a long time in politics

I wonder how much a long term is in BTL?....... a fortnight

mystic_trev

King_Of_Fools wrote: »

Exactly, sentiment is key. However, as soon as these negative cashflow investors start seeing negative asset growththey will sell up as quickly as they can.

There's nothing wrong with BTL - I have two, both bought a long time ago without a mortgage. The problem is the recent rush for gold by the greed brigade, making prices unaffordable for FTB's. I've got no time for these newbies, who subsidise their tennants in the hope of big Capital gains. As sure as night follows day these people are about to find out how much of a gamble they've taken, and lost.

do_it_today!

Doom gloom blah blah ...
and now the good news...
on the upside all the diligent savers will get a better rate on their savings some good news atleast and hopefully we will get some sun in July :j

MickKnipfler

I had a BTL and sold it for twice what I paid (To another BTLer). I'm saving hard now, getting better and better returns on the cash until BTL becomes viable again and the assets I'll be buying will be good value.

If anybody id getting a BTL now, best of luck