Interest rate rise?

System

ilovehouses wrote: »

I've been on sub 2.5% mortgage rates for nearly 10 years and I could fix for 10 years at a similar rate. 2.5% therefore looks like normal to me.

Waiting for a reversion to the mean is a fools errand. For a start interest rates today aren't influenced by what interest rates were 200 years ago. Also predicting higher interest rates is only half the story - it's the when that matters.

Not long now to wait to see if the 'when' is tomorrow...

chucknorris

It's currently about 10/1 against on betfair that the rate doesn't change.

System

ilovehouses wrote: »

The Evening Standard is saying Londoners are braced for a 0.25% rate hike that could add £26/ month to mortgages. Scary stuff - that's about 8 Starbucks coffees.

Well not all Londoners are bracing because two thirds of those with a mortgage are sat on fixed rates. For the last decade I've been hearing about the shock they'll have when they come to the end of their fixes.

Same happened to me - I just finished a four year fix (taken out when rates were definitely going to rise) and discovered I could get another 10 years at the same rate.

Some reversion to the mean!

It's the direction of travel that matters. Tomorrow could be lift off. Let's wait and see.

System

ilovehouses wrote: »

If they go up that would be the second time in a decade. Barely a blip in the direction of travel which has been down since the late nineties.

The BoE said its previous rise was just a reversal of its emergency post Brexit cut, rather than a lift off, per se.

Central banks change rates because they want changes to have an effect. They would not bother re-directing rates, if they thought it would not have an effect.

westernpromise

ilovehouses wrote: »

The Evening Standard is saying Londoners are braced for a 0.25% rate hike that could add £26/ month to mortgages. Scary stuff - that's about 8 Starbucks coffees.

Well not all Londoners are bracing because two thirds of those with a mortgage are sat on fixed rates. For the last decade I've been hearing about the shock they'll have when they come to the end of their fixes.

Same happened to me - I just finished a four year fix (taken out when rates were definitely going to rise) and discovered I could get another 10 years at the same rate.

Some reversion to the mean!

When rates last rose severely (which was 30 years ago), most mortgages were floating rate and hence most mortgagors were affected by higher rates. Despite this, it took 3 years to squeeze inflation out of the system. This was accomplished by impoverishing homeowners to the point that many were repossessed. The others, unless they had an old, small mortgage, lost much or all of their disposable income until rates fell (at one point, my own disposable income was 2/3rds of 1% of the gross, i.e.a 3-digit sum per annum).

Today, so few people are on floating rates that this fact alone must present a conundrum. If you wanted to squeeze inflation out of the system, you can only squeeze a third as many people.

If, 30 years ago, it took a base rate increase from 6% to 15% rates to contain inflation, what would the rise have to have been had it affected only a third of mortgagors? Presumably three times as much, so 3 x 9% for a total rate of 33%! Except that that would have been a Venezuelan level of interest rate that would never have seriously been contemplated. I wonder what they'd do now if the same situation arose?

System

It is wishful thinking to imagine that the BoE changes interest rates just for fun. It changes interest rates because it wants the change to have an effect.

Masomnia

They can also unwind QE to tame inflation now. I can't see significant rate increases until a lot of that is dealt with.

Rate rise tomorrow seems likely but we shall see.

It will add a bit to the interest on my student loan, as it looks as though that will go up with the base rate, so I'll be paying that off a bit slower, but hopefully will add a smidge to savings rates. I'll be buying a property in the next couple of years, most probably, so I'm not sure whether it's god news or bad for me. I'll hopefully get a bit more interest on my deposit, and it should in theory put downward pressure on house prices, but then when I do get a mortgage it will be a higher rate in theory. Obviously 0.25% won't make much difference but as above it's the direction of travel.

Swings and roundabouts I suppose.

michaels

Masomnia wrote: »

They can also unwind QE to tame inflation now. I can't see significant rate increases until a lot of that is dealt with.

Rate rise tomorrow seems likely but we shall see.

It will add a bit to the interest on my student loan, as it looks as though that will go up with the base rate, so I'll be paying that off a bit slower, but hopefully will add a smidge to savings rates. I'll be buying a property in the next couple of years, most probably, so I'm not sure whether it's god news or bad for me. I'll hopefully get a bit more interest on my deposit, and it should in theory put downward pressure on house prices, but then when I do get a mortgage it will be a higher rate in theory. Obviously 0.25% won't make much difference but as above it's the direction of travel.

Swings and roundabouts I suppose.

Experience of the last property 'crash' was that even with much lower rates and falling price sit actually became harder for FTBs to get on to the property market....

Masomnia

michaels wrote: »

Experience of the last property 'crash' was that even with much lower rates and falling price sit actually became harder for FTBs to get on to the property market....

I suppose precisely because prices were falling banks were less willing to lend.

Personally I'm not so naive as to think that a large crash would be a good thing for those looking to get on the property ladder. The economy as a whole is too dependent on the housing market prospering for the benefits of falling house prices to outweigh the negative effects. I could just do with a few months/a year or so of stagnation

System

ilovehouses wrote: »

Nobody is suggesting otherwise. They're trying to put a lid on wage growth because you know how that's getting out of hand.

Interest rates are a powerful yet blunt tool. If they are powerful enough to push down wage growth, they are powerful enough to have effects in lots of other areas.