Will Kwarteng’s U-turn mean lower interest rates?

CompulsiveSaver

Aberdeenangarse said:

It looks like the next increase from BOE is going to be a large one!

https://news.sky.com/story/interest-rate-rise-could-be-higher-than-expected-next-month-bank-of-england-chief-suggests-12721123

Or could it just be the BOE want to settle the market, and will once again apply another below market expectation increase... almost like they want to trash the pound too! (Looking at GBP Vs USB over the last year, you have to wonder!)

TonyTeacake

I agree big hikes in interest rates are needed to get inflation down. I was saying this at the beginning of the year and this is why we have to start looking at the bigger picture and the wider economy. With rampant inflation, I really don’t see any way out of this one as we can’t just flick a switch and turn inflation off. There is a bad choice and a worse choice. The bad choice is to fight inflation and let interest rates go up so everything will collapse. The worse choice is to continue to create inflation to avoid that and postpone to consequences of hyperinflation.

It looks like the BOE along with the Fed are going to keep raising interest rates until inflation starts coming down because if they don't the economy will totally collapse. Unfortunately, we are going to see a lot of pain, especially in the housing market and I can see house prices dropping by 20-50% depending on where you live. In the last 3 months prices have already started to drop and from now on we will see this accelerate.

RobM99

Complete housing market collapse due I feel. It couldn't continue as it had.

TonyTeacake

I totally agree, many people on here were saying to me 6 months ago this is not possible. This market has only been fuelled by ultra low interest rates and cheap money. Unfortunately many will suffer and I do feel sorry for them because they were led to lead house prices will only keep going up and they will be none left to buy. This is the problem when you get estate agents on here posting and other people who have a vested interest in property. In my eyes this is criminal.

sevenhills

The BoE only want to increase interest rates as little as possible, because the Government has a lot of debt that will become more expensive to finance if rates increase.
So Sterling will suffer, it seems that the Government is unable to come out and say that.

Aberdeenangarse

I will be keeping a keen eye on Gilt prices and swap rates, this week. It should give us some idea of the future for Interest rates. I guess, if we got shot of Truss, it might help stabilise the market?

mi-key

I think people predicting 20 - 50% drops in house price are worrying a bit much. It won't happen while there is still such high demand for housing in the UK.  Rates at 5 - 6% were pretty normal not that long ago, and people were still buying and selling normally. Even at those rates, mortgages are still pretty affordable for the majority of people ( i.e those who haven't overstretched to buy in the first place ).

The lenders are all panic reacting at the moment. If the market slows too much they will reduce lending rates to keep it going as it's in their interest that people borrow as much as possible. 

mi-key

Aberdeenangarse said:

I will be keeping a keen eye on Gilt prices and swap rates, this week. It should give us some idea of the future for Interest rates. I guess, if we got shot of Truss, it might help stabilise the market?

I dont think Truss is going to last until Xmas !

TonyTeacake

mi-key said:

I think people predicting 20 - 50% drops in house price are worrying a bit much. It won't happen while there is still such high demand for housing in the UK.  Rates at 5 - 6% were pretty normal not that long ago, and people were still buying and selling normally. Even at those rates, mortgages are still pretty affordable for the majority of people ( i.e those who haven't overstretched to buy in the first place ).

The lenders are all panic reacting at the moment. If the market slows too much they will reduce lending rates to keep it going as it's in their interest that people borrow as much as possible. 

I don't need to worry about price drops in houses as mine is paid for. 

I'm not sure which planet you are on in regards to saying the majority of people can still afford 5-6% mortgages especially with house prices being ridiculously high and with everything else going on with the cost of living crisis. In the last 3 months house prices have started to come down has the affordability for most as gone out of the window, interest rates are only going higher and I'm certain house prices will start to drop dramatically in the next few months.

Anyone with any common sense would know these prices are not sustainable. Just take a look at a mortgage calculator and see the difference in payments between 2 and 6%.

billy2shots

TonyTeacake said:

Anyone with any common sense would know these prices are not sustainable. Just take a look at a mortgage calculator and see the difference in payments between 2 and 6%.

£150,000 over 30 years 

2%=£554 per month

6% = £899 per month

Context - The average UK mortgage for 2021 was £138,000. (2022 not compiled as far as I could see).