interest rates down more???

mr.broderick

nollag2006 wrote: »

Today's FT is forecasting 5% by mid-2008.

This should ensure that recent softening of house prices doesn't continue.

Phew !

Why Phew Nollag?

Generali

nollag2006 wrote: »

Today's FT is forecasting 5% by mid-2008.

This should ensure that recent softening of house prices doesn't continue.

Phew !

I suspect from the above that you're missing the point of what happens in a credit crunch.

The point is that the BoE has lost control of interest rates. The key is to look at the difference between LIBOR (the rate at which banks lend to each other) and the base rate. It's been all over the place for months now which suggests to me that the BoE has lost control of the money market.

They will get it back eventually (I hope) but goodness knows when. In the meantime you can expect rates paid by consumers and businesses for all borrowing to rise and that paid by govt to fall. Just look at the rates banks are paying to longer term depositors now to see the signals coming from the market.

You're right about getting a base rate linked mortgage I reckon, just scan the small print for anything that talks about a link to LIBOR.

Personally I'd aim for a ten year fix and look to pay most off in that time.

G

free4440273

Compared to last week swap rates for 1,2,3,5 yrs are showing (slight) increases [this was before yesterday's BofE decision].

dolce_vita

All this talk of interest rates at the moment is a red herring.

It will not affect the housing market.

Houses will still be cheaper in 12 months time.

ManAtHome

Generali wrote: »

The point is that the BoE has lost control of interest rates. The key is to look at the difference between LIBOR (the rate at which banks lend to each other) and the base rate. It's been all over the place for months now which suggests to me that the BoE has lost control of the money market.

They will get it back eventually (I hope) but goodness knows when.

Any thoughts on whether the Middle East and/or China will scrap their linking to the dollar? I've read they're starting to suffer seriously from "dollar drop inflation" as well as the usual commodity price increases.

free4440273

I think the markets think the Dollar has suffered enough. There could very well be a huge snapback in the fortunes of the Greenback soon. I still think that a huge unwinding in the forex market will preciptate, and bring on, a massive correction in the world stock market(s).

Generali

ManAtHome wrote: »

Any thoughts on whether the Middle East and/or China will scrap their linking to the dollar? I've read they're starting to suffer seriously from "dollar drop inflation" as well as the usual commodity price increases.

It's an interesting question.

The Venezualan and Saudi finance ministers were in a closed meeting at an OPEC conference where a microphone had been left on in error and the Venezuelan brought up pricing oil in Euros. The Saudi said that he wouldn't discuss it at all.

The Kuwaitis have started to track 'a basket of currencies' the exact make-up of which is secret. I suspect there isn't a basket at all but that Kuwait is trying to 'normalise' it's monetary policy - that is set an interest rate to try to control demand and supply of money.

I think the Chinese are happy with their 'moving peg'. I could see them gradually moving to tracking a basket of currencies but ultimately they need to have a proper monetary policy and floating too rather than this ridiculous system where you order the banks to start and stop lending. They've got problems with inflation largely because they won't increase interest rates to where they need to be.

A lot of bank economists seem to think that the dollar is about 20% under 'fair value' or 'par' on measures like purchasing parity (ie what you can buy with a pound should be about the same as what you can buy with a pounds-worth of dollars) but the thing is we've had such massive imbalances in the capital markets for souch a long time that unwiding them is going to cause a lot of pain and some unexpected things to happen.

Oh and re free4440273's post - interest rate swap rates will affect fixed rate deals, LIBOR will have an effect on SVRs - an SVR will track LIBOR in some way (as implied here and here).

The pain in the housing markets will begin when people with high LTVs that have missed a payment in the past two years will be forced onto SVRs when their fixed rate deal comes to an end. It is possible that banks will stop 100% fixed rate mortgages entirely. That's when the credit crunch gets interesting, especially if lenders start to question new borrowers / remortgagers exactly how they plan to repay their mortgage in 25 years time. Some people will see the cost of home ownership rise substantially.

Then it's over to the politicians. My guess is some kind of Mortgage Financing Board (set up as a Third Way* 'Public Private Partnership natch) to bail out the best causes among defaulting borrowers with a few at the fringe allowed to go to the wall so the politicos can claim that moral hazard still exists.

Oh almost forgot, there should be an IMVHO up there somewhere.


* Mussolini used the term Third Way to describe his policies.