Will interest rates ever rise again

Thrugelmir

Generali wrote: »

You need to be careful about drawing conclusions from superficial similarities. For a start, Japan has had a demographic timebomb explode which is of a different order of magnitude to anything the UK, US or Australia face (although in places like Italy and Germany without migration they will have similar problems).

Japan didn't have a demographic timebomb when it's problems started. The bubble economy stopped in the early 90's.

Median age in Japan is 46 , in the UK 42. So not worlds apart either.

Perhaps if Japan had pumped £375bn into it's banking system then perhaps now we'd be looking at a different outcome now. The Japanese banks got it wrong. Much as RBS, Northern Rock, HBOS and Barclays did collectively. Era has past when UK banks were 4 out of the largest 5 globally.

Here's a question for you. How much mortgage debt is now owned by overseas investors? Appears NRAM is looking to sell off around £13 bn to US banks by next April.

Generali

Thrugelmir wrote: »

Japan didn't have a demographic timebomb when it's problems started. The bubble economy stopped in the early 90's.

Median age in Japan is 46 , in the UK 42. So not worlds apart either.

Perhaps if Japan had pumped £375bn into it's banking system then perhaps now we'd be looking at a different outcome now. The Japanese banks got it wrong. Much as RBS, Northern Rock, HBOS and Barclays did collectively. Era has past when UK banks were 4 out of the largest 5 globally.

Good points all.

Thrugelmir wrote: »

Here's a question for you. How much mortgage debt is now owned by overseas investors? Appears NRAM is looking to sell off around £13 bn to US banks by next April.

I have no idea and don't know how you'd find out. AFAIK (and I'm more of an equities man than a fixed income one at work) bonds aren't registered in the same way as equities so it wouldn't be possible to know.

Presumably the BoE owns a fair chunk of RMBS via FLS.

cells

do interest rates determine the amount of credit in the system or does the amount of credit in the system determine interest rates?

cells

my view is that the amount of credit in the system determines the interest rate not the conventional view that the interest rate determines the amount of credit

the central banks can go against this and artificially cause too high a rate (but cant cause too low a rate) and in the course set off a recession

That is what happened imo during the last recession. the central banks artificially held rates too high for too long.

So if you change the question around from
will interest rates ever rise again, to
will the net credit in the system ever fall again,
The answer becomes simpler and more clear and the answer is no

Since the free market began setting rates in the 1980s or thereabouts credit expanded and set the price lower and lower. There is no reason to think net credit will fall so interest rates wont rise

of course there are extreme outliers where net credit would fall but they are so low probability that you can discount them towards zero. Examples would be a nuclear war that would cause net credit to fall and interest rates to rise. Reversal of globalisation would be another way for net credit to fall and interest rates to rise

michaels

Thrugelmir wrote: »

Japan didn't have a demographic timebomb when it's problems started. The bubble economy stopped in the early 90's.

Median age in Japan is 46 , in the UK 42. So not worlds apart either.

Perhaps if Japan had pumped £375bn into it's banking system then perhaps now we'd be looking at a different outcome now. The Japanese banks got it wrong. Much as RBS, Northern Rock, HBOS and Barclays did collectively. Era has past when UK banks were 4 out of the largest 5 globally.

Here's a question for you. How much mortgage debt is now owned by overseas investors? Appears NRAM is looking to sell off around £13 bn to US banks by next April.

I thought Barclays got it wrong by selling off or closing down a perfectly good investment banking operation because they couldn't take the political heat.

wotsthat

Looks like we might be dusting off Renovation Man's interest rate gamble thread to wish 0.5% base rates a happy seventh birthday.

In summer 2014 Carney couldn't have been more clear that interest rates were likely to rise by November 2014. Being charitable we might say that forward guidance influenced behaviour to a degree that rate rises were no longer needed (I'd been looking for a 5 year fix for a while but took the plunge because it looked as if the writing was on the wall for example).

Less charitably we might say the BoE have damaged their credibility. If they're nowhere near on a 6 month horizon what chance have they got over 12 -18 months? They're the people making the decision so you'd think they'd have a better idea of what they plan to do than the man on the street.

Conrad

In case of any use, I wanted to mention the eye watering size of mortgages people are taking in my area, a fairly typical SE location.
First timers of modest means casually enquire after £300k loans, they tend to have no knowledge of interest rate norms prior to the crunch. A goodly proportion enquire after £600k FTB loans, often with just 10% deposit.


Bare in mind mortgage SVR's they will migrate to tend to be around 5%, if the BOE then also put rates up by 2% this would be a disaster for many and also bare in mind prior to 2008 an awful lot of people took interest only, whereas going forward they have repayment mortgages so the monthly outgoings at 7% rates would be eye watering given todays borrowing levels.


One of the common conversations I have* is in trying to get people to consider less ambitious property plans but people often find this friendly advice quite offensive / outrageous. Had a Polish FTB girl the other week get damned irritated I would dare suggest she consider 'just' a £250k flat rather than a £350k house.


*Note I offer a specialist information only 'what is feasible' consultancy (a typical client would be a first time LL wanting help putting together a portfolio - we work out a model based on factors such as the type of tenant demographic they seek), I am no longer the owner of a regulated firm. However, I still get lots of enquiries for regulated business, so I just have a free friendly chat as it were. .

Generali

cells wrote: »

do interest rates determine the amount of credit in the system or does the amount of credit in the system determine interest rates?

In a free market for specie money with no central bank intervention, the relative demand for saving and borrowing will set the interest rate. The amount of credit in the system, assuming that the country isn't in a recession or similar, will be set by the rules on bank reserves.

MrRee_2

Truth is no-one knows ... not even me.

Anyone can say anything about this subject as it doesn't matter one jot.

I have witnessed 'experts' predicting rate rises for years now - nothing happens and I don't believe anything will in my lifetime.

I have just re-mortgaged my daughters property at a fix of 1.74% with no fees. Money is free and yet we don't see a boom in credit to buy goods and services. There are zero inflationary pressures currently.

My own opinion, and it's as good as any experts, is that we shall not see rate rises for at least 5 years .... why would we? We are in a new world, there is a new world order.

Just as historic interest rates were around 5% for many of the last decades, so they can be around 0.5% for the next 50 years.

A rise will be in response to something amazing happening - and that isn't going to happen. It will be in an effort to curb spending, while there is no spending to speak of.

The older population know that rates will not increase, that's why the BTL is booming ..... get 7% per annum on a property while it increases in Capital by 8% per annum ..... it's a no brainer.

The Banks have too much money, so no need to attract funds.

Government debt is sustainable as long as rates internationally remain rock bottom.

There will be zero incentive to raise rates in the next decade.

mystic_trev

MrRee wrote: »

The Banks have too much money, so no need to attract funds.

Government debt is sustainable as long as rates internationally remain rock bottom.

There will be zero incentive to raise rates in the next decade.

So, the whole world can binge on cheap Interest rates, almost indefinitely, with no downside?