Are we expecting BOE to remain at 4.75% on 8th February 2025?

lojo1000

Sarah1Mitty2 said:

lojo1000 said:

Other than the obvious media and political pressure the BoE doesn't really want to have rates at 5.5% since they know there would be very little sense in taking on new debt with rates at those levels. And new debt is needed to grow the economy which is why currently it is going nowhere.

They would rather try and talk the economy (wages) down - "don't ask for a pay rise/ accept you're poorer".

I expect housing will take another leg down over the next few months post this bump in mortgage rates we've seen these last few weeks. That could knock confidence.

The current Govt don't sound like they're about to do a tax giveaway or increase spending significantly.

I expect we'll see a very drawn out, low growth economy over the next few years; possibly extending to decades.

Remember Japan went to zero rates and never got inflation above 2%. Property and stocks declined for years. People just began to accept that's the way it is. (though the Nikkei now is a great performer!)

Strange how the psychology changes.

In the past people still took on debt with those rates (and higher)?

Agreed and no doubt many have the capacity to do so.

But on the macro level, I don't think the consumer can take on more debt if base rates move up another 1% never mind mortgage rates going up even more. I think the consumer will be making net repayments and that is what we are seeing in M2 and net mortgage lending.

In the 80s when mortgage rates were last 'normal' above 5%, consumer debt was half where it is now (chart below).

I also don't think banks have the capacity or will to lend this much. I don't think it would be responsible lending. This is why banks are already pulling back as rates go higher and house prices (their security against default) falls.

Even in the longer term if we do get a recession and the BoE capitulates and cuts base rates, banks will be reluctant to cut their rates as employment will be falling and their credit risks rising. This is why (in the old days) recessions used to last years. It took time for market prices to adjust low enough for people to feel confident enough to step in.

Since 2001, central banks did not have the patience for prices to adjust but rather took short cuts and 'promised' markets more rate cuts would follow, essentially putting a floor under prices. They're not doing that now but many smaller investors are still to wake up to that fact hence the fact Rightmove is still showing asking prices as rising.

PixelPound

lmitchell said:

Sarah1Mitty2 said:

lojo1000 said:

Other than the obvious media and political pressure the BoE doesn't really want to have rates at 5.5% since they know there would be very little sense in taking on new debt with rates at those levels. And new debt is needed to grow the economy which is why currently it is going nowhere.

They would rather try and talk the economy (wages) down - "don't ask for a pay rise/ accept you're poorer".

I expect housing will take another leg down over the next few months post this bump in mortgage rates we've seen these last few weeks. That could knock confidence.

The current Govt don't sound like they're about to do a tax giveaway or increase spending significantly.

I expect we'll see a very drawn out, low growth economy over the next few years; possibly extending to decades.

Remember Japan went to zero rates and never got inflation above 2%. Property and stocks declined for years. People just began to accept that's the way it is. (though the Nikkei now is a great performer!)

Strange how the psychology changes.

In the past people still took on debt with those rates (and higher)?

Yes, but with affordability at 2-3x income, not 4.49x or even 5x.

Personally, I think a bank rate in the 3% region should offer the right balance of mitigating inflation, rewarding savers and encouraging responsible borrowing.

So it will mean less people buying average price and above houses due to affordability and because supply outstrips demand, then prices fall until they become affordable, isn't that the idea.

Also it's a case of raising interest rates until it puts massive break on the economy, spending etc in general. A very blunt tool but it is crashing the economy to bring inflation down

PixelPound

jjmmww1 said:

TheAble said:

jjmmww1 said:

Sounds like bad new for me rate is due to run out dec 2024 anyway to work out what i could be paying from then? if rates go to 6%?

Just plug it into a mortgage calculator using 6%, remaining balance, remaining term.

Thanks didn't relise it was that simple be looking at over a £300 pound rise then for us next year

Overpay like crazy. Once interest rates started ramping up and we weren't going to get the gradual increase many predicted, we just cut back on everything we could, holidays etc put it all in increasing interest savings to be able to put as much in as possible before my 1.69% ended. I appreciate it might not be possible for you, but glad we did it.

lmitchell

nic_c said:

lmitchell said:

Sarah1Mitty2 said:

lojo1000 said:

Other than the obvious media and political pressure the BoE doesn't really want to have rates at 5.5% since they know there would be very little sense in taking on new debt with rates at those levels. And new debt is needed to grow the economy which is why currently it is going nowhere.

They would rather try and talk the economy (wages) down - "don't ask for a pay rise/ accept you're poorer".

I expect housing will take another leg down over the next few months post this bump in mortgage rates we've seen these last few weeks. That could knock confidence.

The current Govt don't sound like they're about to do a tax giveaway or increase spending significantly.

I expect we'll see a very drawn out, low growth economy over the next few years; possibly extending to decades.

Remember Japan went to zero rates and never got inflation above 2%. Property and stocks declined for years. People just began to accept that's the way it is. (though the Nikkei now is a great performer!)

Strange how the psychology changes.

In the past people still took on debt with those rates (and higher)?

Yes, but with affordability at 2-3x income, not 4.49x or even 5x.

Personally, I think a bank rate in the 3% region should offer the right balance of mitigating inflation, rewarding savers and encouraging responsible borrowing.

So it will mean less people buying average price and above houses due to affordability and because supply outstrips demand, then prices fall until they become affordable, isn't that the idea.

Also it's a case of raising interest rates until it puts massive break on the economy, spending etc in general. A very blunt tool but it is crashing the economy to bring inflation down

House prices will fall, but only by a limited amount because of the supply/demand issue.

As for bank rate being a blunt tool, it absolutely is in this instance. The economy was never overheated in the first place. I don't know many of my friends who are splurging right now, so it's not taking much to cause the economy to flatline. Supply-side reforms should always have been the goal alongside rate hikes.

Sarah1Mitty2

lmitchell said:

nic_c said:

lmitchell said:

Sarah1Mitty2 said:

lojo1000 said:

Other than the obvious media and political pressure the BoE doesn't really want to have rates at 5.5% since they know there would be very little sense in taking on new debt with rates at those levels. And new debt is needed to grow the economy which is why currently it is going nowhere.

They would rather try and talk the economy (wages) down - "don't ask for a pay rise/ accept you're poorer".

I expect housing will take another leg down over the next few months post this bump in mortgage rates we've seen these last few weeks. That could knock confidence.

The current Govt don't sound like they're about to do a tax giveaway or increase spending significantly.

I expect we'll see a very drawn out, low growth economy over the next few years; possibly extending to decades.

Remember Japan went to zero rates and never got inflation above 2%. Property and stocks declined for years. People just began to accept that's the way it is. (though the Nikkei now is a great performer!)

Strange how the psychology changes.

In the past people still took on debt with those rates (and higher)?

Yes, but with affordability at 2-3x income, not 4.49x or even 5x.

Personally, I think a bank rate in the 3% region should offer the right balance of mitigating inflation, rewarding savers and encouraging responsible borrowing.

So it will mean less people buying average price and above houses due to affordability and because supply outstrips demand, then prices fall until they become affordable, isn't that the idea.

Also it's a case of raising interest rates until it puts massive break on the economy, spending etc in general. A very blunt tool but it is crashing the economy to bring inflation down

House prices will fall, but only by a limited amount because of the supply/demand issue.

As for bank rate being a blunt tool, it absolutely is in this instance. The economy was never overheated in the first place. I don't know many of my friends who are splurging right now, so it's not taking much to cause the economy to flatline. Supply-side reforms should always have been the goal alongside rate hikes.

Not really convinced by that, wanting something isn`t related to ability to purchase something, people will just continue living where they are until prices drop to how much they can borrow.

Sarah1Mitty2

lmitchell said:

Sarah1Mitty2 said:

lojo1000 said:

Other than the obvious media and political pressure the BoE doesn't really want to have rates at 5.5% since they know there would be very little sense in taking on new debt with rates at those levels. And new debt is needed to grow the economy which is why currently it is going nowhere.

They would rather try and talk the economy (wages) down - "don't ask for a pay rise/ accept you're poorer".

I expect housing will take another leg down over the next few months post this bump in mortgage rates we've seen these last few weeks. That could knock confidence.

The current Govt don't sound like they're about to do a tax giveaway or increase spending significantly.

I expect we'll see a very drawn out, low growth economy over the next few years; possibly extending to decades.

Remember Japan went to zero rates and never got inflation above 2%. Property and stocks declined for years. People just began to accept that's the way it is. (though the Nikkei now is a great performer!)

Strange how the psychology changes.

In the past people still took on debt with those rates (and higher)?

Yes, but with affordability at 2-3x income, not 4.49x or even 5x.

Personally, I think a bank rate in the 3% region should offer the right balance of mitigating inflation, rewarding savers and encouraging responsible borrowing.

3% is not enough of a reward for savers, it has been much much higher in the past. Responsible borrowing is 3 or 4 times your income max for a house, and being able to pay a mortgage debt at 10%+ if necessary due to changing economic conditions.

lmitchell

Sarah1Mitty2 said:

lmitchell said:

Sarah1Mitty2 said:

lojo1000 said:

Other than the obvious media and political pressure the BoE doesn't really want to have rates at 5.5% since they know there would be very little sense in taking on new debt with rates at those levels. And new debt is needed to grow the economy which is why currently it is going nowhere.

They would rather try and talk the economy (wages) down - "don't ask for a pay rise/ accept you're poorer".

I expect housing will take another leg down over the next few months post this bump in mortgage rates we've seen these last few weeks. That could knock confidence.

The current Govt don't sound like they're about to do a tax giveaway or increase spending significantly.

I expect we'll see a very drawn out, low growth economy over the next few years; possibly extending to decades.

Remember Japan went to zero rates and never got inflation above 2%. Property and stocks declined for years. People just began to accept that's the way it is. (though the Nikkei now is a great performer!)

Strange how the psychology changes.

In the past people still took on debt with those rates (and higher)?

Yes, but with affordability at 2-3x income, not 4.49x or even 5x.

Personally, I think a bank rate in the 3% region should offer the right balance of mitigating inflation, rewarding savers and encouraging responsible borrowing.

3% is not enough of a reward for savers, it has been much much higher in the past. Responsible borrowing is 3 or 4 times your income max for a house, and being able to pay a mortgage debt at 10%+ if necessary due to changing economic conditions.

That may have been the case in the late 80s/early 90s, but the world has moved on. It's simply not going to happen. Despite this short-term volatility, you only have to look at the yield curves to know even the markets feel bank rate needs to settle at a lower level.

PixelPound

lmitchell said:

Sarah1Mitty2 said:

lmitchell said:

Sarah1Mitty2 said:

lojo1000 said:

Other than the obvious media and political pressure the BoE doesn't really want to have rates at 5.5% since they know there would be very little sense in taking on new debt with rates at those levels. And new debt is needed to grow the economy which is why currently it is going nowhere.

They would rather try and talk the economy (wages) down - "don't ask for a pay rise/ accept you're poorer".

I expect housing will take another leg down over the next few months post this bump in mortgage rates we've seen these last few weeks. That could knock confidence.

The current Govt don't sound like they're about to do a tax giveaway or increase spending significantly.

I expect we'll see a very drawn out, low growth economy over the next few years; possibly extending to decades.

Remember Japan went to zero rates and never got inflation above 2%. Property and stocks declined for years. People just began to accept that's the way it is. (though the Nikkei now is a great performer!)

Strange how the psychology changes.

In the past people still took on debt with those rates (and higher)?

Yes, but with affordability at 2-3x income, not 4.49x or even 5x.

Personally, I think a bank rate in the 3% region should offer the right balance of mitigating inflation, rewarding savers and encouraging responsible borrowing.

3% is not enough of a reward for savers, it has been much much higher in the past. Responsible borrowing is 3 or 4 times your income max for a house, and being able to pay a mortgage debt at 10%+ if necessary due to changing economic conditions.

That may have been the case in the late 80s/early 90s, but the world has moved on. It's simply not going to happen. Despite this short-term volatility, you only have to look at the yield curves to know even the markets feel bank rate needs to settle at a lower level.

You may well get banks using that as the affordability threshold. When BOE was 0.5 the affordability was 4-6% even though back then it looked like unlikely amounts.

Sarah1Mitty2

lmitchell said:

Sarah1Mitty2 said:

lmitchell said:

Sarah1Mitty2 said:

lojo1000 said:

Other than the obvious media and political pressure the BoE doesn't really want to have rates at 5.5% since they know there would be very little sense in taking on new debt with rates at those levels. And new debt is needed to grow the economy which is why currently it is going nowhere.

They would rather try and talk the economy (wages) down - "don't ask for a pay rise/ accept you're poorer".

I expect housing will take another leg down over the next few months post this bump in mortgage rates we've seen these last few weeks. That could knock confidence.

The current Govt don't sound like they're about to do a tax giveaway or increase spending significantly.

I expect we'll see a very drawn out, low growth economy over the next few years; possibly extending to decades.

Remember Japan went to zero rates and never got inflation above 2%. Property and stocks declined for years. People just began to accept that's the way it is. (though the Nikkei now is a great performer!)

Strange how the psychology changes.

In the past people still took on debt with those rates (and higher)?

Yes, but with affordability at 2-3x income, not 4.49x or even 5x.

Personally, I think a bank rate in the 3% region should offer the right balance of mitigating inflation, rewarding savers and encouraging responsible borrowing.

3% is not enough of a reward for savers, it has been much much higher in the past. Responsible borrowing is 3 or 4 times your income max for a house, and being able to pay a mortgage debt at 10%+ if necessary due to changing economic conditions.

That may have been the case in the late 80s/early 90s, but the world has moved on. It's simply not going to happen. Despite this short-term volatility, you only have to look at the yield curves to know even the markets feel bank rate needs to settle at a lower level.

A historically lower level maybe, not necessarily lower than today? However the market can "price in" a new reality at the drop of a hat, not long ago the market was saying 4% and done?

weddingringman

lmitchell said:

Sarah1Mitty2 said:

lmitchell said:

Sarah1Mitty2 said:

lojo1000 said:

Other than the obvious media and political pressure the BoE doesn't really want to have rates at 5.5% since they know there would be very little sense in taking on new debt with rates at those levels. And new debt is needed to grow the economy which is why currently it is going nowhere.

They would rather try and talk the economy (wages) down - "don't ask for a pay rise/ accept you're poorer".

I expect housing will take another leg down over the next few months post this bump in mortgage rates we've seen these last few weeks. That could knock confidence.

The current Govt don't sound like they're about to do a tax giveaway or increase spending significantly.

I expect we'll see a very drawn out, low growth economy over the next few years; possibly extending to decades.

Remember Japan went to zero rates and never got inflation above 2%. Property and stocks declined for years. People just began to accept that's the way it is. (though the Nikkei now is a great performer!)

Strange how the psychology changes.

In the past people still took on debt with those rates (and higher)?

Yes, but with affordability at 2-3x income, not 4.49x or even 5x.

Personally, I think a bank rate in the 3% region should offer the right balance of mitigating inflation, rewarding savers and encouraging responsible borrowing.

3% is not enough of a reward for savers, it has been much much higher in the past. Responsible borrowing is 3 or 4 times your income max for a house, and being able to pay a mortgage debt at 10%+ if necessary due to changing economic conditions.

That may have been the case in the late 80s/early 90s, but the world has moved on. It's simply not going to happen. Despite this short-term volatility, you only have to look at the yield curves to know even the markets feel bank rate needs to settle at a lower level.

It was only about 3 or 4 years ago that the stress tests were removed from mortgage applications. Our 2019 TSB mortgage offer boldly stated “Warning, if rates rise by 10% you will pay £xxxx.xx

It’s simply a fact that lower mortgage rates result in property rising uncontrollable. There’s little incentive to buy something smaller and build equity when rates are only 2 or 3% for people with high LTVs. Housing was near ‘interest free credit’ for a period there and look what happened. 

It encourages a culture whereby you also have millions of people that don’t have the option of selling up to downsize, or the capacity to release equity from their homes if times get tough.