Interest Rates could hit 6% very soon!

phlash

http://www.bankofengland.co.uk/publications/minutes/mpc/pdf/2007/mpc0705.pdf

Bank of England voted 9-0 for the rise in May, and had talked through raising 0.5%, but decided that they'd probably just raise another 0.25% in coming months. More fuel to the fire.

mystic_trev

"The comments were more hawkish than analysts had forecast, with market experts now certain that another interest rate rise is imminent - perhaps as soon as June, as the Bank of England remains concerned over increasing pricing and wage pressures.

"We think the risk is evenly split between the June and July meetings as it would be too late to leave the next hike until August," said David Brown, an analyst at Bear Stearns.

"The risks also remain tilted to rates peaking at 6%."

http://news.bbc.co.uk/1/hi/business/6682971.stm

Swap rates are also up again.

http://www.swaprates.co.uk/

free4440273

i really hope this does NOT mean they then decide to cut rates 'immediately' thereafter, say, in August/September. My fixed rate bond expires in October. please wait till then mervyn (nasty old man!)

mystic_trev

free4440273 wrote: »

i really hope this does NOT mean they then decide to cut rates 'immediately' thereafter, say, in August/September. My fixed rate bond expires in October. please wait till then mervyn (nasty old man!)

No - It would appear that IR's will remain high for the next three years as the outlook for inflation is to remain 'sticky'

free4440273

mystic_trev wrote: »

No - It would appear that IR's will remain high for the next three years as the outlook for inflation is to remain 'sticky'

yipeee! you, sir, have made my day. but now, back to reality: yes, you are right with regards to inflation remaining 'sticky' and therefore one would think rates being in accordance with this. but we all know how both inept and fickle the BofE are. anyhow, as long as they only come down *after* october, that will suit me fine. thanks for your help also

sortofok

kingkano wrote: »

was BTL even invented in 1990? I can confidently say BTL mortgages weren't that mainstream....

.

a rose by any other name king.....

It might not have had a specific name but it was around I assure you.

Did it myself long before this present crop of wannabe property millionaires
were out of long trousers.

kingkano

Exactly my point... it wasnt mainstream. it was probably 2% of its current size.....

Romani_Ite_Domum

kingkano wrote: »

was BTL even invented in 1990? I can confidently say BTL mortgages weren't that mainstream....

I thought MIRAS wouild have removed money from the equation? ie people dont get it back, so gotta find it from elsewhere.

Nobody has mentioned the numerous other things that happened at the time as well. High unemployment, markets weren't too clever, etc. It wasnt just an isolated property problem....

Kingkano, thanks, some good points for discussion.

BTL mortgages were not mainstream during the last boom/bust. It would have been interesting had they had been. They have certainly contributed to this boom. The mindset of "property as an investment" was also not so prevalent then. Most people considered houses and somewhere to live.

Before April 1994, the rate of tax relief given to home-owners was 25 per cent. That month it was cut to 20 per cent, and a year later it was reduced again to 15 per cent in April 1998. A reduction to 10 per cent announced in Mr Brown's July 1997 Budget took effect in April 1998. It was abolished completely in April 2000. It was only applicable to the first £30K of the loan an represented on aprox 0.35 increase in IRs at that time.

The date of 6th April 1988 is also significant as MIRAS only applied to mortgages before this date. This lead to panic buying and contributed to the boom that lead to the bust in circa 1990.

I cannot find any hard data on employment or market sat that time but from memory, the bust caused a recession that caused unemployment and downturn of the markets. The chicken versus egg is hard to say. IRs at 15% would have affected businesses as well.
As the country's economy leans more heavily on the housing market, things could be a lot worse this time.

I am hoping that the government and MPC can land this baby without crashing it.

From the OP link

Mr Alexandrovich said: “If the Bank overtightens, there is a risk of quite a severe effect on the market and the economy.”

The question is, how did they let it get to this point in the first place?

mystic_trev

Romani_Ite_Domum wrote: »

The question is, how did they let it get to this point in the first place?

Surely it's boiling frog syndrome? If they'd thrown in a 0.50% when they knew inflation was taking off, they could have 'nipped it in the bud' without the need for IR's to go so high.

I see that now many are saying IR's will now have to go to at least 6% and the Markets are now starting to price that in.

pinkshoes

The interest rate futures market seems to be able to predict interest rates pretty well, and interest rates have a strong correlation with house prices, the futures market is writing in 6% as we speak.

True, although we've never had such a housing shortage before, so who knows how that will affect things. We cannot physically build houses fast enough for our growing population.