Interest rate rise?

Filo25

Ozymandias73 wrote: »

We are seeing a substantial increase in lower paid jobs, that is the story of the current jobs boom. If higher paid earners need to take lower paying jobs to get by, they may not be able to afford their mortgage payments if they have over-extended themselves.

I don't entirely disagree that we are seeing a growth in lower paid/skilled jobs, since the GFC, but if that is the case on a massive basis we will see slowing wage growth a fall in inflationary pressures and once again an end to rate rises or indeed a reversal of them.

With regards to overextending themselves on a mortgage that is pretty difficult to do with more recent mortgages given the affordability testing now in place, no doubt there will be a few people with issues due to changes in circumstances (there always are) but I wouldn't go banking on a collapse in house prices as a result (once again if we get a collapse in house prices that is also likely to feed into more dovish monetary policy)

System

Filo25 wrote: »

I don't entirely disagree that we are seeing a growth in lower paid/skilled jobs, since the GFC, but if that is the case on a massive basis we will see slowing wage growth a fall in inflationary pressures and once again an end to rate rises or indeed a reversal of them.

With regards to overextending themselves on a mortgage that is pretty difficult to do with more recent mortgages given the affordability testing now in place, no doubt there will be a few people with issues due to changes in circumstances (there always are) but I wouldn't go banking on a collapse in house prices as a result (once again if we get a collapse in house prices that is also likely to feed into more dovish monetary policy)

A mortgagor is over-extended if they cannot afford their payments because of a change in circumstances, such as unemployment. Affordability testing cannot predict future changes in circumstances. Zombie companies failing because of rising interest rates will be the next big story.

System

Filo25 wrote: »

So what, basically anyone who has mortgage debt that they can't pay off immediately with savings is overstretched?

Unless they have another sufficient source of income or savings, they may find their debt repayments are too large to service on unemployment benefits or with a lower paid job.

lisyloo

Ozymandias73 wrote: »

A mortgagor is over-extended if they cannot afford their payments because of a change in circumstances, such as unemployment. Affordability testing cannot predict future changes in circumstances. Zombie companies failing because of rising interest rates will be the next big story.

Fixed rates can protect people specifically from the interest rate risk.

Affordability testing can protect people from being over-extended.
Insurance will pay out for period whilst people find other work.
Savings ditto.


If people only find a lower paying job they will have to cut their cloth to suit including possibly selling their home and/or moving location


Not nice but so what?
Twas ever thus and was far worse when people were down the mines or in the poorhouse.


We are better prepared both as an economy and individually for downsides due to banking regulations that have been put in place since 2008 and lending restrictions also.
Doesn't mean that nothing bad will happen but so what?


It's a storm in a teacup that you are making.


A brexit no deal is a FAR greater risk that a tiny interest rate rise.

Filo25

Ozymandias73 wrote: »

Unless they have another sufficient source of income, they may find their debt repayments are too large to service on unemployment benefits or with a lower paid job.

And as repeated previously if that occurs on a significant basis then we will see significant impacts in the housing market and real economy, but that will also feed through to more dovish monetary policy in future.

I find it odd that people can't see that monetary policy doesn't just happen in a vacuum, it loosens or tightens in response to changes in the broader economy, rates don't just go to 5% tomorrow because that constitutes someone's idea of "normal"

You see it a lot on HPC, the fantasy scenario where rates start to rise companies fail, people lose their jobs en masse, others can't afford to pay the higher mortgage rates and lose their homes and the promised land of massive house price reductions comes as the BoE continues to raise rates even in an environment like that where we would undoubtedly be in recession.

As I said earlier we aren't in a massive inflationary spiral where rates do need to tighten quickly and almost certainly overshoot (which does often lead to recessions), unless things change dramatically we are looking at a very slow tightening cycle

System

lisyloo wrote: »

Fixed rates can protect people specifically from the interest rate risk.

Affordability testing can protect people from being over-extended.
Insurance will pay out for period whilst people find other work.
Savings ditto.


If people only find a lower paying job they will have to cut their cloth to suit including possibly selling their home and/or moving location


Not nice but so what?
Twas ever thus and was far worse when people were down the mines or in the poorhouse.


We are better prepared both as an economy and individually for downsides due to banking regulations that have been put in place since 2008 and lending restrictions also.
Doesn't mean that nothing bad will happen but so what?


It's a storm in a teacup that you are making.


A brexit no deal is a FAR greater risk that a tiny interest rate rise.

It may be a storm in a teacup for you, because your income is high and guaranteed, and you have no exposure to debt yourself or debt ridden companies, but I am sure for Gaucho, Prezzo, Carillion etc ex-employees, and other current workers who are 'just about managing', it is rather more than a storm in a teacup

System

Filo25 wrote: »

And as repeated previously if that occurs on a significant basis then we will see significant impacts in the housing market and real economy, but that will also feed through to more dovish monetary policy in future.

I find it odd that people can't see that monetary policy doesn't just happen in a vacuum, it loosens or tightens in response to changes in the broader economy, rates don't just go to 5% tomorrow because that constitutes someone's idea of "normal"

You see it a lot on HPC, the fantasy scenario where rates start to rise companies fail, people lose their jobs en masse, others can't afford to pay the higher mortgage rates and lose their homes and the promised land of massive house price reductions comes as the BoE continues to raise rates even in an environment like that where we would undoubtedly be in recession.

As I said earlier we aren't in a massive inflationary spiral where rates do need to tighten quickly and almost certainly overshoot (which does often lead to recessions), unless things change dramatically we are looking at a very slow tightening cycle

Only time will tell how this plays out. I hope, if debt servicing problems in the economy deteriorate with rising rates, you will admit your error.

Filo25

Ozymandias73 wrote: »

Only time will tell how this plays out. I hope, if debt servicing problems in the economy deteriorate with rising rates, you will admit your error.

Did you actually even read the post?

System

Filo25 wrote: »

Did you actually even read the post?

yes, and I am finishing the conversation, with the obvious answer that only time will tell who is right.

buglawton

ilovehouses wrote: »

It was more than foreseen. The point of QE was to encourage inflation during the crisis to encourage people not to defer spending and to seek higher yields.

Which resulted in low inflation (that still outstripped wage growth), massive house price bubble, no pay rises in many sectors for approx 8 years and pay up overall by about 6% in 10 years.

That worked well.