U-Turn on Mortgage Interest Rates

mi-key

Cheesy77 said:

mi-key said:

In reality, the lenders don't need to increase rates anymore. They have already built in the future interest rate rises into the 6% rates.

Interest rate is ( only ) 2.25% normally we would expect that to translate to mortgage rates of around 4% ish on the better deals, but they went straight up to 6% 

Spot on. They've already priced in further rate rises into their mortgage products on offer now. Its pretty obvious rates will go up further, so they'd have been daft not to. But no reason to expect mortgage rates to go any higher than currently unless we see base rates getting to 5+% (currently looking unlikely)

Will be interesting to see what happens now with Truss resigning. As long as they dont replace her with Boris !

dosh1

Any further thoughts now that we have a new Prime Minister?  Do you see mortgage rates dropping, stabilising or increasing in the coming months to April 2023?

Serve_the_Servants

Rate rises are a bit of a sideshow to be honest. The bigger issue that’s not being widely reported to the masses across BBC or Sky News, is the unwinding of quantitive easing. 

The BOE still plans to do this, though it had been forced to delay. It was all that printing of money that helped spike inflation in the first place - probably the biggest unreported input cost when all is boiled down. It’s obviously also helped to devalue sterling. 

On 1st November the BOE will start selling bonds and the world will be watching (as they are the first to do so) It’s unlikely they will dare to carry large rate increases at the same time, as that really would be very high risk. Hence the timing of them saying there won’t be as much of an increase as the market expects. 

They may as well have waited until 5th November so that we could really view it for what it is - a bonfire sale. Google the implications if you’re interested. There are some articles out there. 

The Washington Post notes ‘Central bankers have been remarkably reticent to discuss the potential dangers of a twin tightening of monetary policy by simultaneously raising borrowing costs and unwinding bond purchases’ 

Meanwhile, all that QE is starting to become even more expensive for the taxpayer in other ways. Bloomberg reports that the treasury has just transferred £11billion to the BOE to cover projected losses in its bond buying programme. The government had already made an £828million advance. 

Due to all of the market chaos, the BOE is in trouble with QE costs. They need to unwind it all, but in doing so it could cause even more chaos. Watch this space. 

Also isn’t it very strange how all of this is not widely reported by popular news outlets - or is it really that strange after all? Doubt the powers that be would want the masses to join the dots between a truly massive QE scheme and the huge pain in the wider economy. It’s the single most unreported issue, which is simultaneously the single biggest cause of damage to our living standards.

Similarly with America. The dollar has lost 90% of its value since the 1970s. That is the main driver of reduced spending power. Again, the fact itself and also the reasons behind it are not widely reported, so the population at large are just not aware. The same fundamentals are driving Sterling down but the main news outlets distract with other causes such as the war in Ukraine, COVID and Brexit. They are small fry compared with QE. 

Funny that the main news outlets just report on the causes the BOE gives them. COVID, Brexit, Ukraine etc. None of them ever question why the BOE omits the main reason in their reports. Obviously it’s because they would never want to publicly admit that it’s actually them themselves who are the cause of massive inflation (and why it will remain high long after the other factors cease to be an issue) Though I’m sure they’ll find some other excuse/distraction to roll out by then. 

So in conclusion, it won’t really matter as much what the central bank interest rate ends up being at the end of this year, or spring next year etc. The bond market is now turning bearish and the BOE are about to start their bond sale on 1st November. 

The first lot of many sales which will have more of an influence on mortgage rates than most people think. Depressed bond values = higher mortgage rates. The wider world is watching what the UK does next, and it’s not going to be pretty. It also means the BOE will lack the firepower to really tackle inflation and the cycle will be perpetuated. 

Serve_the_Servants

The escalation is clear. The BOE printed more money in the first year of Covid alone, than it did in the entire decade leading up to it.