Interest Rates going back up to normal levels again?

Thrugelmir

movilogo wrote: »

For many homeowners, the current interest rate is the new normal and any upward movement is abnormal

As Michael Lewis rhetorically asked in his book "The Big Short". Is the answer to keeping people happy in a stagnent wage economy to give them cheap credit?

Interesting thought. Some years later.

Thrugelmir

ilovehouses wrote: »

What does normal even mean? My average mortgage rate over the last 23 years is a sniff under 5%.

If that's normal and rates return there it would be most unwelcome for mortgage holders but not exactly unmanageable.

I sometimes think the normal being referred to is the very highest mortgage rates in living memory which. of course, aren't normal.

Your post sums up why we discuss the matter at length on this forum. The real issues are at macro level rather the micro. People are at the very least being complacent. Cheap debt. Stunning market returns. Life couldn't be easier. Well at least until the wind changes direction. Then there'll be pain and shocks for a fair number. Who didn't make hay while they could.

worldtraveller

Bank of England Governor Mark Carney said on Friday that Britain’s economy was on track for the central bank to start raising record-low interest rates in the “relatively near term.”

“What we have said, that if the economy continues on the track that it’s been on, and all indications are that it is, in the relatively near term we can expect that interest rates would increase somewhat,” Carney told BBC radio.

The British central bank surprised markets just over two weeks ago when it said most of its policymakers thought the first rate hike in more than a decade would be needed “in the coming months,” if inflation pressure continued to build.

Carney has previously said he was one of those policymakers.

Most economists now expect the BoE to raise its Bank Rate to 0.50 percent from 0.25 percent on Nov. 2, at the end of its next policy meeting.

Reuters

michaels

interest rate increases when they come - when and if they come - will be to a limited extent and gradual

Current guidance is November, April 18 and possibly 'late 18' so unless we see something unexpected in the economy (and today we had growth revised down and house prices falling headlines) then it is very unlikely rates will be above 1% by the end of next year.

Is there any guidance further out than this?

worldtraveller

michaels wrote: »

Current guidance is November, April 18 and possibly 'late 18' so unless we see something unexpected in the economy (and today we had growth revised down and house prices falling headlines) then it is very unlikely rates will be above 1% by the end of next year.

Is there any guidance further out than this?

Yup, and let's face it, the BoE really does also need to put some meat back on the bones in preparation for the next financial crisis.

Thrugelmir

michaels wrote: »

Current guidance is November, April 18 and possibly 'late 18' so unless we see something unexpected in the economy (and today we had growth revised down and house prices falling headlines) then it is very unlikely rates will be above 1% by the end of next year.

Is there any guidance further out than this?

Cheap debt etc has served it's purpose. No one said normalisation wouldn't be painless. Even Carney's words will have an impact and levers will start to be pulled.

Fed starts it's balance sheet normalisation programme next month. BOE will no doubt monitor. To ensure that £ - $ exchange rate doesn't swing around widely.

The-Joker

movilogo wrote: »

for many homeowners, the current interest rate is the new normal and any upward movement is abnormal :d

then they havent got a clue what is going on, and they may be shocked when they find out what is really nornal and they get repossessed.

michaels

Why would interest rates rise above the level needed to control inflation to levels that caused damage to the real economy just because that was the normal level 20 years ago? The BoE target is symmetrical, too low inflation is also a failure so unless the policy makers manage to engineer stagflation then I can't see why rates would rise to a level that would hurt borrowers to the extent suggested.

My understanding is most unsecured lending is at fixed rates except for credit cards and overdrafts where the rates are so far away from the base rate that there is no strong correlation.

Thrugelmir

The-Joker wrote: »

then they havent got a clue what is going on, and they may be shocked when they find out what is really nornal and they get repossessed.

Unlikely that they'll get repossessed. The tightening in itself maybe unnoticable as very gradual. Plenty of time for people to adjust.

Thrugelmir

ilovehouses wrote: »

Seems at odds with 'no one said normalisation wouldn't be painless' and 'Well at least until the wind changes direction. Then there'll be pain and shocks for a fair number. Who didn't make hay while they could.'

Generic broad statements. Pull a lever and there'll be an impact to someone or something somewhere in the economy. Nothing I can do to influence events. However I can sail with the wind.