Rate predictions

Aberdeenangarse

Cheesy77 said:

Aberdeenangarse said:

Cheesy77 said:

PK_London said:

It's unlikely inflation will be tamed unless interest rates are higher than inflation and we're a long way from that. I expect 5yrs of high rates and if we're lucky they will gently fall back to where they are today over the next 5. Inflation is a difficult genie to put back in the bottle. In the US, their mortgage rates are averaging 7% and they still have a few rate rises to go.

With a likely recession and a government banging the drum for growth growth growth, it would not make any sense to keep interest rates that high for any longer than was absolutely needed to reduce inflation 

BOE / Government target for inflation is 2% We won’t be seeing that again for a long time. I’d be surprised if mortgage rates dropped much below 5% in the next few years. 

Really? You clearly know something the Bank of England doesn't. 

This is an article on their website published just a week ago: https://www.bankofengland.co.uk/knowledgebank/will-inflation-in-the-uk-keep-rising

Direct quote from article "We expect inflation to start to fall next year. We have a target of 2% for inflation. We expect inflation to be close to that target in around two years."

The BOE are a bunch of imbeciles, as was proved by their dithering recently. Their credibility has been shot to pieces!

ader42

The BOE have been very slow to increase rates - hence the state of the £ compared to the $.

Do people not realise that the long term average BOE base rate in the UK is 6.8% ?
We should expect a return to average.

In normal times savings accounts pay out 4-5% to savers.

Even if we account for half of the inflation being caused by energy/war - that still means the inflation rate is more than triple the BOE target - they have been worse than useless and should have raised rates long ago.

They will rise again in November and then again in January. If the average fix is now 6% then it will be at least 7% come spring.

I know that people say houses are so much more expensive now that rates can’t go too high - but that is not true - the banks will simply move to offer longer terms and 50 year and multi-generational mortgages will become the norm in my opinion. Anything to keep house values inflated sadly. 

GAMBITv5

ader42 said:

The BOE have been very slow to increase rates - hence the state of the £ compared to the $.

Do people not realise that the long term average BOE base rate in the UK is 6.8% ?
We should expect a return to average.

In normal times savings accounts pay out 4-5% to savers.

Even if we account for half of the inflation being caused by energy/war - that still means the inflation rate is more than triple the BOE target - they have been worse than useless and should have raised rates long ago.

They will rise again in November and then again in January. If the average fix is now 6% then it will be at least 7% come spring.

I know that people say houses are so much more expensive now that rates can’t go too high - but that is not true - the banks will simply move to offer longer terms and 50 year and multi-generational mortgages will become the norm in my opinion. Anything to keep house values inflated sadly. 

Multigenerational mortgages will never happen. It just won’t. 

Cheesy77

ader42 said:

The BOE have been very slow to increase rates - hence the state of the £ compared to the $.

Do people not realise that the long term average BOE base rate in the UK is 6.8% ?
We should expect a return to average.

In normal times savings accounts pay out 4-5% to savers.

Even if we account for half of the inflation being caused by energy/war - that still means the inflation rate is more than triple the BOE target - they have been worse than useless and should have raised rates long ago.

They will rise again in November and then again in January. If the average fix is now 6% then it will be at least 7% come spring.

I know that people say houses are so much more expensive now that rates can’t go too high - but that is not true - the banks will simply move to offer longer terms and 50 year and multi-generational mortgages will become the norm in my opinion. Anything to keep house values inflated sadly. 

Why should be expect a return to the average of 20 years ago? 

If that's to be the case then we either need a huge fall in house prices or wages will have to climb massively to allow those interest rates to be sustainable. We need to get back to house price to income ratios that existed when rates were averaging 6%, which is absolutely lightyears away. 

Neither of the above outcomes is politically or economically viable, so it's a dilemma for the government and BOE. They know there's a balance to be struck, they simply cannot grow the economy when interest rates are sitting at 6%. A large proportion of the population will have no disposable income, both mortgage holders and renters, which equals zero growth and in fact probably recession and repossession. 

Glad it's not my problem to solve. 

dander

Cheesy77 said:

If that's to be the case then we either need a huge fall in house prices or wages will have to climb massively to allow those interest rates to be sustainable. We need to get back to house price to income ratios that existed when rates were averaging 6%, which is absolutely lightyears away. 

Thing is, mortgage interest rates are not set based on affordability or house price to income ratios - it's more a case that low interest rates have made high house price to income ratios seem affordable. Mortgage rates are based on BoE base rate, which are used to try and manage inflation (major over-simplification I know). If mortgage interest rates prove "unsustainable" for mortgage holders then repossessions and property market crashing are what will bring those income ratios down. If the BoE don't raise rates and just let inflation run out of control, then people will still find their mortgages unaffordable because inflation is what sends "cost of living" spiralling. Brutal as it sounds, over-stretched mortgage holders won't be the majority and fiscal policy won't change to save them from repossession. The BoE will make their choices based on the wider economy and mortgage holders will have to sink or swim. 

Cheesy77

dander said:

Cheesy77 said:

If that's to be the case then we either need a huge fall in house prices or wages will have to climb massively to allow those interest rates to be sustainable. We need to get back to house price to income ratios that existed when rates were averaging 6%, which is absolutely lightyears away. 

Thing is, mortgage interest rates are not set based on affordability or house price to income ratios - it's more a case that low interest rates have made high house price to income ratios seem affordable. Mortgage rates are based on BoE base rate, which are used to try and manage inflation (major over-simplification I know). If mortgage interest rates prove "unsustainable" for mortgage holders then repossessions and property market crashing are what will bring those income ratios down. If the BoE don't raise rates and just let inflation run out of control, then people will still find their mortgages unaffordable because inflation is what sends "cost of living" spiralling. Brutal as it sounds, over-stretched mortgage holders won't be the majority and fiscal policy won't change to save them from repossession. The BoE will make their choices based on the wider economy and mortgage holders will have to sink or swim. 

I don't disagree, but back to my original point I just cannot see rates staying at 6% (or 5.5% as the now peak is according to markets) for long. 

Inflation is already forecast to start coming down, and be back to 2% target in around 2 years. We have a stagnating economy at best, possibly soon about to go into recession. Raising interest rates is precisely the opposite strategy you'd want to be doing when facing a recession. Yes rates will go up further to help bring Inflation down, but my opinion is that they will then be reduced again, probably cautiously and not to less than 1% like they have been, but reduced nevertheless. Perhaps settling in the 2-3% range in the medium term.

I could of course be wrong, and nobody knows, but in basic economic terms it would be counterintuitive to have 5-6% interest rates in a  stagnating/recessing economy. In fact rates at that level could push us into recession and make it very difficult to come out. Time will tell

Aberdeenangarse

Cheesy77 said:

dander said:

Cheesy77 said:

If that's to be the case then we either need a huge fall in house prices or wages will have to climb massively to allow those interest rates to be sustainable. We need to get back to house price to income ratios that existed when rates were averaging 6%, which is absolutely lightyears away. 

Thing is, mortgage interest rates are not set based on affordability or house price to income ratios - it's more a case that low interest rates have made high house price to income ratios seem affordable. Mortgage rates are based on BoE base rate, which are used to try and manage inflation (major over-simplification I know). If mortgage interest rates prove "unsustainable" for mortgage holders then repossessions and property market crashing are what will bring those income ratios down. If the BoE don't raise rates and just let inflation run out of control, then people will still find their mortgages unaffordable because inflation is what sends "cost of living" spiralling. Brutal as it sounds, over-stretched mortgage holders won't be the majority and fiscal policy won't change to save them from repossession. The BoE will make their choices based on the wider economy and mortgage holders will have to sink or swim. 

I don't disagree, but back to my original point I just cannot see rates staying at 6% (or 5.5% as the now peak is according to markets) for long. 

Inflation is already forecast to start coming down, and be back to 2% target in around 2 years. We have a stagnating economy at best, possibly soon about to go into recession. Raising interest rates is precisely the opposite strategy you'd want to be doing when facing a recession. Yes rates will go up further to help bring Inflation down, but my opinion is that they will then be reduced again, probably cautiously and not to less than 1% like they have been, but reduced nevertheless. Perhaps settling in the 2-3% range in the medium term.

I could of course be wrong, and nobody knows, but in basic economic terms it would be counterintuitive to have 5-6% interest rates in a  stagnating/recessing economy. In fact rates at that level could push us into recession and make it very difficult to come out. Time will tell

The reason Mortgage rates are around 6% is because fixed rate Mortgages are determined by swap rates, which are up again this morning, not the BOE. Basically the Banks have a better crystal ball than the BOE. 

gravesend46

Just my luck (and many others I'm sure) that my fixed rate 1.79% ends in January. Reluctant to take a new fixed at best at 5%+ across two to five years.

A tracker on the other hand adds about £100 a month to what I'm currently paying (as opposed to nearly £300 with a fixed). Tempted to save the difference I would pay on a fixed each month and dip into that if the rates go up rather than just hand it to the bank now on the fixed rate... but I guess I need to do a few sums about percentage rises and how much this course of action would actually be sensible. If at all!

tdawber

there was growth last quarter as well which is positive news for interest rates, be interesting to see what BOE do in November. 

C225

Base rate of 3.5% in November then 4% in February is where I think it'll end up. Possibly peak at 5% by the May rate decision...