What will happen when interest rates rise?

Generali

midnight_child wrote: »

This is logical, but I hear that whatever changes BoE (MPC) make takes up to 2 years to actually filter into the real economy.

I agree but the biggest effects come within a few months. Second order effects take longer to filter through.

Thrugelmir

midnight_child wrote: »

Ok, so the date for the first rate rise is now apparently Feb 2016. This thread is not about guessing when rates will increase, but discussing how any increases will affect the economy. Its a topic I've been thinking about recently as rates have never been this low before, so reversing may have unknown consequences. I am interested in what your views are.


To start things off:


1) Will we see a mass of defaults on loans/mortgages, from those who have been struggling with repayments for the past 7 years?


2) Will house prices stagnate/reduce due to it becoming increasingly difficult to afford mortgages?


3) Will higher savings rates cause and exodus from shares by those who had been chasing income from dividends?


4) Will increased rates be good/bad for foreign investment into the UK?

Cheers
MC

Once rates start to increase then small incremental rises will follow. Interest rates aren't purely driven by BOE base rate either. Other factors may influence the mortgage market as well. The job of propping up the banks is now complete. Market forces will slowly self determine future direction.

Mistermeaner

Interest rate rises will be instigated in part to help control inflation, we're flat at the moment in inflation terms but as this changes rates will rise - arguably of course but done perfectly the result should be net zero; a few borrowers may be worse off. But a few savers will be better off. More money in savings = more money to lend without the depreciating power of printing, so foreign stuff will be cheaper etc etc goes the big merry go round.

Bottom line unless you're mortgaged on a knife edge all should be ok

midnight_child

CLAPTON wrote: »

your assumptions are obviously wrong and impossible.

Clearly this was an attempt at sarcasm.


The point was to highlight that the GDP figure is a cumulative of performance of all sectors, and that some areas of the country have a higher proportion of certain types. Financial services will make up a much larger proportion in London than for example Liverpool, Swansea, or Middlesboro.
If say financial services had increased by 10%, this could offset a large contraction in say manufacturing. The overall figure might suggest the economy is improving quickly, but this masks the fact that some sectors/regions are really struggling.

Thrugelmir

midnight_child wrote: »

The point was to highlight that the GDP figure is a cumulative of performance of all sectors,

GDP is a measurement that the more you drill into it becomes increasingly meaningless.

Mistermeaner

Which ones are doing well and which struggling?

CLAPTON

midnight_child wrote: »

Clearly this was an attempt at sarcasm.


The point was to highlight that the GDP figure is a cumulative of performance of all sectors, and that some areas of the country have a higher proportion of certain types. Financial services will make up a much larger proportion in London than for example Liverpool, Swansea, or Middlesboro.
If say financial services had increased by 10%, this could offset a large contraction in say manufacturing. The overall figure might suggest the economy is improving quickly, but this masks the fact that some sectors/regions are really struggling.

I don't know where you are going here

as you probably know; within a sovereign country there is only one BoE base rate and so it will not suit all parts/sectors of the economy any of the time;
indeed it may suit none of the economy any of the time

but it's aim is to suit what is perceived as the best interest of the 'economy' all of the time

it rarely succeeds but is always set.

midnight_child

Mistermeaner wrote: »

Bottom line unless you're mortgaged on a knife edge all should be ok

Indeed, but how many people are in this position?


I cant find any official estimates, but shelter claimed earlier this year that 3 million were struggling to pay housing costs (rent or mortgage). Though, they don't exactly clarify what they mean by "struggling".
http://www.theguardian.com/society/2015/jan/05/missing-rent-mortgage-payments-shelter-interest-rate-housing-costs

Spidernick

midnight_child wrote: »

OThis thread is not about guessing when rates will increase, but discussing how any increases will affect the economy.

PasturesNew

http://www.bankofengland.co.uk/boeapps/iadb/Repo.asp

It was 5.75 in 2007. At the time we were being told rates'd be rising.

It was 17% when I first ventured into the world of work.