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

lojo1000

MattMattMattUK said:

lojo1000 said:

MattMattMattUK said:

Strummer22 said:

michaels said:

Thing is only 30% of households have  a mortgage and of those only a proportion renew their rate each year.  So it is this small proportion who have to have their spending severely reduced in order for demand to reduce enough that wages and prices stop rising.  Fair would be to use fiscal policy to reduce spending power which at the same time would help with the deficit but what matters is not fair but popular (or least unpopular)

That's ignoring renters. Most landlords have mortgages which have also gotten more expensive, hence they put rent up and that affects a much larger % of the population.

The majority of, but roughly 60/40, landlords have mortgages. . There are some inconsistencies in the data because some is collected nationally, where as others at by England & Wales, Scotland and NI separately. 
Using the 29 million household figure as a baseline, 28.2% of those have a mortgage against them, so 8.17 million. Of that 2.7 million are BTL mortgages, 61% vs 1.7 million, 39% without mortgages. 

Strummer22 said:

Only those with no housing costs, which I suppose is the opposite ends of the spectrum from social housing paid for by benefits, to those with fully paid off mortgages, are completely immune to the increased costs of borrowing. 

Of the 71.8% of dwellings owned without mortgages the majority are owner occupied, some will be second homes and some will be rental. Social housing paid for from benefits (so the taxpayer) will likely fall under both mortgaged and non-mortgaged property, as well as some of the rental property being paid for by the taxpayer. 

I understand the requirement to raise interest rates is largely to protect Sterling otherwise inflation would get even worse, but it does seem that placing the burden and the negatives of that "solution" on just 28.2% of the population is a very poor way of spreading the pain.

Rates are being increased to quell the demand for money; that doesn't just relate to property but also credit cards, car finance and even business investment.

The thing with that is it that it is not feeding through, my credit card interest rates have not moved (no balances, but no rate increases either), I have not looked at car finance but from the state of the market it would not appear to be an impediment. UK business investment is down, but that is largely related to the overall economic climate combined with Brexit. Consumer debt is also rising again, which would indicate that spending is not being constrained. Measures to constrain spending would be better, all unsecured debt not exceeding a multiple of income, constraints based on interest rate cost for debt (eg. unsecured debt of no more than 1.5 times income, no more than 0.2 of income on debts which incur more than 10% interest etc.). It is not necessarily that credit is too cheap, it is that it is far too easy to access, borrowing needs car greater regulation. 

lojo1000 said:

Rate policy is a sledgehammer which has many ill effects but rates should never have been lowered so far and left so low at such an expansionary level for so long.

It is more like slash and burn than anything else, yes it clears the land/inflation, but it destroys when it does so and after a year or two all it leaves is an unproductive wasteland. 

It takes time for rate increases to feed through to consumer/business decision. First, a rate change will impact intermediaries who offer the finance (banks) and then later on the consumer/business who may be on fixed debt terms. The old 'long and variable lags' in play. 

It does seem that there was so much money created during Covid times that it is taking a long time to work off.



I don't know how strongly you are making your last comment re 'slash and burn' but I will make the opposite point whilst noting there is a happy medium somewhere (which is difficult to find).

The error central banks made since 2001 was not raising rates and maintaining at a level which put inefficient and/or reckless business out of business. Keeping rates too low allows unproductive/unprofitable businesses to survive. They use scarce resources which should be used by more profitable/efficient businesses in a more productive way.

The nature analogy is perfect. Even natural forests will benefit from wildfire/large trees falling and clearing the light for the next generation (with stronger, better adapted genes) to emerge.

You do not prop up old trees and stick the leaves back on!

Clearly this does not advocate rates at 20% and kill everything in sight but if a business does not have the strength to survive a recession, they should not be in business.

OhWow

michaels said:

Strummer22 said:

michaels said:

Thing is only 30% of households have  a mortgage and of those only a proportion renew their rate each year.  So it is this small proportion who have to have their spending severely reduced in order for demand to reduce enough that wages and prices stop rising.  Fair would be to use fiscal policy to reduce spending power which at the same time would help with the deficit but what matters is not fair but popular (or least unpopular)

That's ignoring renters. Most landlords have mortgages which have also gotten more expensive, hence they put rent up and that affects a much larger % of the population.

Only those with no housing costs, which I suppose is the opposite ends of the spectrum from social housing paid for by benefits, to those with fully paid off mortgages, are completely immune to the increased costs of borrowing. 

Rents relate to supply and demand, landlords did not cut rents when mortgage costs fell and can not just automatically pass on increases to mortgage costs, whatever simplistic picture the TV News might present.

The obvious answer is to build more houses!

Otherwise we just keep passing this; high house prices and people struggling with an interest rate increase/ not enough empty rentals to create lower rents, down to the next generation.

Sarah1Mitty2

RelievedSheff said:

Sarah1Mitty2 said:

RelievedSheff said:

Sarah1Mitty2 said:

RelievedSheff said:

Sarah1Mitty2 said:

michaels said:

Strummer22 said:

michaels said:

Thing is only 30% of households have  a mortgage and of those only a proportion renew their rate each year.  So it is this small proportion who have to have their spending severely reduced in order for demand to reduce enough that wages and prices stop rising.  Fair would be to use fiscal policy to reduce spending power which at the same time would help with the deficit but what matters is not fair but popular (or least unpopular)

That's ignoring renters. Most landlords have mortgages which have also gotten more expensive, hence they put rent up and that affects a much larger % of the population.

Only those with no housing costs, which I suppose is the opposite ends of the spectrum from social housing paid for by benefits, to those with fully paid off mortgages, are completely immune to the increased costs of borrowing. 

Rents relate to supply and demand, landlords did not cut rents when mortgage costs fell and can not just automatically pass on increases to mortgage costs, whatever simplistic picture the TV News might present.

If there is a meaningful recession trying to raise rents in that scenario will be interesting to say the least, people (and the media) tend to forget or ignore that a mortgage cost is going to be there until the debt is paid off but a rental cost is only there until the tenant gives notice, the landlord with big mortgage debt is far more trapped by higher rates than his or her tenant.

Where are your renters living after their notice has expired?

They still have to live somewhere!

Exactly, they are living somewhere else but the landlord still has to cover his mortgage liability, that was my point.

The landlord will get a new tenant. Not difficult when there is a shortage of rental property on the market.

Yes, but not necessarily at a price that covers their debt obligation, especially if the stated aim of causing a recession comes to fruition.

Rents are rising just the same as mortgages.

No landlord is going to rent their property out at a loss. Worst case they sell it and that's one less property available to rent which puts further pressure on the remaining rental stock and further props up rental prices.

 It was pointed out to you in an earlier post that a landlord is charging 25% below their local "Market Rate", that doesn`t stack up with your idea that landlords are constantly pushing rents to the limit? It is much harder to sell an ex-BTL now as potential buyers have had their affordability curtailed, (see the thread title) but if it does sell that could be one or more less renters looking to rent easing the pressure on the existing rental stock.

Sarah1Mitty2

OhWow said:

michaels said:

Strummer22 said:

michaels said:

Thing is only 30% of households have  a mortgage and of those only a proportion renew their rate each year.  So it is this small proportion who have to have their spending severely reduced in order for demand to reduce enough that wages and prices stop rising.  Fair would be to use fiscal policy to reduce spending power which at the same time would help with the deficit but what matters is not fair but popular (or least unpopular)

That's ignoring renters. Most landlords have mortgages which have also gotten more expensive, hence they put rent up and that affects a much larger % of the population.

Only those with no housing costs, which I suppose is the opposite ends of the spectrum from social housing paid for by benefits, to those with fully paid off mortgages, are completely immune to the increased costs of borrowing. 

Rents relate to supply and demand, landlords did not cut rents when mortgage costs fell and can not just automatically pass on increases to mortgage costs, whatever simplistic picture the TV News might present.

The obvious answer is to build more houses!

Otherwise we just keep passing this; high house prices and people struggling with an interest rate increase/ not enough empty rentals to create lower rents, down to the next generation.

I don`t think this will work, the better route is to make houses cheaper by raising rates, this is the route they are now taking.

OhWow

Sarah1Mitty2 said:

OhWow said:

michaels said:

Strummer22 said:

michaels said:

Thing is only 30% of households have  a mortgage and of those only a proportion renew their rate each year.  So it is this small proportion who have to have their spending severely reduced in order for demand to reduce enough that wages and prices stop rising.  Fair would be to use fiscal policy to reduce spending power which at the same time would help with the deficit but what matters is not fair but popular (or least unpopular)

That's ignoring renters. Most landlords have mortgages which have also gotten more expensive, hence they put rent up and that affects a much larger % of the population.

Only those with no housing costs, which I suppose is the opposite ends of the spectrum from social housing paid for by benefits, to those with fully paid off mortgages, are completely immune to the increased costs of borrowing. 

Rents relate to supply and demand, landlords did not cut rents when mortgage costs fell and can not just automatically pass on increases to mortgage costs, whatever simplistic picture the TV News might present.

The obvious answer is to build more houses!

Otherwise we just keep passing this; high house prices and people struggling with an interest rate increase/ not enough empty rentals to create lower rents, down to the next generation.

I don`t think this will work, the better route is to make houses cheaper by raising rates, this is the route they are now taking.

Of course it will work. We simply don't have enough houses for our very fast growing population, soon to overtake the population of France.

It's basic supply and demand. Increase the supply of houses and prices fall.

I paid 26k for my first house in my my mid 20s, a 3 bedroom house in London with a garage. Plenty of rentals about too for less rent than my mortgage, for those who couldn't afford to buy.

It's the lack of house building for the growing population that is causing the problem now.

Newbie_John

The original house price may drop from £200k to £175k but with current rates over the mortgage time instead of paying total:
£200k -> £250k
£175k -> £400k

Is this more affordable? No it's not.

MattMattMattUK

Sarah1Mitty2 said:

OhWow said:

michaels said:

Strummer22 said:

michaels said:

Thing is only 30% of households have  a mortgage and of those only a proportion renew their rate each year.  So it is this small proportion who have to have their spending severely reduced in order for demand to reduce enough that wages and prices stop rising.  Fair would be to use fiscal policy to reduce spending power which at the same time would help with the deficit but what matters is not fair but popular (or least unpopular)

That's ignoring renters. Most landlords have mortgages which have also gotten more expensive, hence they put rent up and that affects a much larger % of the population.

Only those with no housing costs, which I suppose is the opposite ends of the spectrum from social housing paid for by benefits, to those with fully paid off mortgages, are completely immune to the increased costs of borrowing. 

Rents relate to supply and demand, landlords did not cut rents when mortgage costs fell and can not just automatically pass on increases to mortgage costs, whatever simplistic picture the TV News might present.

The obvious answer is to build more houses!

Otherwise we just keep passing this; high house prices and people struggling with an interest rate increase/ not enough empty rentals to create lower rents, down to the next generation.

I don`t think this will work, the better route is to make houses cheaper by raising rates, this is the route they are now taking.

Houses will not get cheaper because interest rates rise apart from a temporary blip, the issue is supply and demand imbalance and the only way to correct that is for dwelling construction to exceed the number of new dwellings. They are not taking this as a measure to influence house prices, but as a measure to tackle inflation and prop up Sterling. 

RelievedSheff

OhWow said:

Sarah1Mitty2 said:

OhWow said:

michaels said:

Strummer22 said:

michaels said:

Thing is only 30% of households have  a mortgage and of those only a proportion renew their rate each year.  So it is this small proportion who have to have their spending severely reduced in order for demand to reduce enough that wages and prices stop rising.  Fair would be to use fiscal policy to reduce spending power which at the same time would help with the deficit but what matters is not fair but popular (or least unpopular)

That's ignoring renters. Most landlords have mortgages which have also gotten more expensive, hence they put rent up and that affects a much larger % of the population.

Only those with no housing costs, which I suppose is the opposite ends of the spectrum from social housing paid for by benefits, to those with fully paid off mortgages, are completely immune to the increased costs of borrowing. 

Rents relate to supply and demand, landlords did not cut rents when mortgage costs fell and can not just automatically pass on increases to mortgage costs, whatever simplistic picture the TV News might present.

The obvious answer is to build more houses!

Otherwise we just keep passing this; high house prices and people struggling with an interest rate increase/ not enough empty rentals to create lower rents, down to the next generation.

I don`t think this will work, the better route is to make houses cheaper by raising rates, this is the route they are now taking.

Of course it will work. We simply don't have enough houses for our very fast growing population, soon to overtake the population of France.

It's basic supply and demand. Increase the supply of houses and prices fall.

I paid 26k for my first house in my my mid 20s, a 3 bedroom house in London with a garage. Plenty of rentals about too for less rent than my mortgage, for those who couldn't afford to buy.

It's the lack of house building for the growing population that is causing the problem now.

I know it's an unpopular thought train but the problem is more over population than lack of housing.

We do not have enough resources, housing included, to support the current population.

MattMattMattUK

lojo1000 said:

MattMattMattUK said:

lojo1000 said:

MattMattMattUK said:

Strummer22 said:

michaels said:

Thing is only 30% of households have  a mortgage and of those only a proportion renew their rate each year.  So it is this small proportion who have to have their spending severely reduced in order for demand to reduce enough that wages and prices stop rising.  Fair would be to use fiscal policy to reduce spending power which at the same time would help with the deficit but what matters is not fair but popular (or least unpopular)

That's ignoring renters. Most landlords have mortgages which have also gotten more expensive, hence they put rent up and that affects a much larger % of the population.

The majority of, but roughly 60/40, landlords have mortgages. . There are some inconsistencies in the data because some is collected nationally, where as others at by England & Wales, Scotland and NI separately. 
Using the 29 million household figure as a baseline, 28.2% of those have a mortgage against them, so 8.17 million. Of that 2.7 million are BTL mortgages, 61% vs 1.7 million, 39% without mortgages. 

Strummer22 said:

Only those with no housing costs, which I suppose is the opposite ends of the spectrum from social housing paid for by benefits, to those with fully paid off mortgages, are completely immune to the increased costs of borrowing. 

Of the 71.8% of dwellings owned without mortgages the majority are owner occupied, some will be second homes and some will be rental. Social housing paid for from benefits (so the taxpayer) will likely fall under both mortgaged and non-mortgaged property, as well as some of the rental property being paid for by the taxpayer. 

I understand the requirement to raise interest rates is largely to protect Sterling otherwise inflation would get even worse, but it does seem that placing the burden and the negatives of that "solution" on just 28.2% of the population is a very poor way of spreading the pain.

Rates are being increased to quell the demand for money; that doesn't just relate to property but also credit cards, car finance and even business investment.

The thing with that is it that it is not feeding through, my credit card interest rates have not moved (no balances, but no rate increases either), I have not looked at car finance but from the state of the market it would not appear to be an impediment. UK business investment is down, but that is largely related to the overall economic climate combined with Brexit. Consumer debt is also rising again, which would indicate that spending is not being constrained. Measures to constrain spending would be better, all unsecured debt not exceeding a multiple of income, constraints based on interest rate cost for debt (eg. unsecured debt of no more than 1.5 times income, no more than 0.2 of income on debts which incur more than 10% interest etc.). It is not necessarily that credit is too cheap, it is that it is far too easy to access, borrowing needs car greater regulation. 

lojo1000 said:

Rate policy is a sledgehammer which has many ill effects but rates should never have been lowered so far and left so low at such an expansionary level for so long.

It is more like slash and burn than anything else, yes it clears the land/inflation, but it destroys when it does so and after a year or two all it leaves is an unproductive wasteland. 

It takes time for rate increases to feed through to consumer/business decision. First, a rate change will impact intermediaries who offer the finance (banks) and then later on the consumer/business who may be on fixed debt terms. The old 'long and variable lags' in play. 

The thing is credit card interest rates are so far from base rate that it will have little impact either way and card debts are for all but those who have seriously crashed the car so small that increases in rates will have marginal impact. In terms of business it almost always borrows to invest/grow, so stopping businesses borrowing reduces economic growth but does not impact inflation in any meaningful way so that is a complete negative.

lojo1000 said:

It does seem that there was so much money created during Covid times that it is taking a long time to work off.

I agree that the Covid handouts are a huge part of the cause of this, the government printed and borrowed money on a scale not seen outside of a world war, much of it was handed out without adequate checks, in many cases it was far too generous and was always going to be inflationary, the BOE should also have not cut interest rates during Covid, it would have helped reduce the inflationary pressure but also kept Sterling somewhat stronger, further reducing inflationary impacts. 

lojo1000 said:

I don't know how strongly you are making your last comment re 'slash and burn' but I will make the opposite point whilst noting there is a happy medium somewhere (which is difficult to find).

There is a happy medium, BOE rates of between 1.5-2.5% would be in the medium and long term be a reasonable level once inflation is under control, that would align well with a 2% inflation target. The slash and burn is that it is important to get inflation under control, a shallow technical recession with costs spread over the whole economy is nothing huge to worry about in pursuit of that, but the way we are heating, 5%+ base rate and the impact on mortgage holders means that not only are we likely to face a deeper and potentially damaging recession, but may face deflation in late 2024 or 2025 and we will do long term damage to the economy, on top of the long term damage from Covid, the long term damage from Brexit and the long term damage from the failure to balance the budget post 2007. There is only so much damage the ecology of the economy can take before parts of it start to fail significantly, it already seems like we are on the cusp of that in some key indicator areas, hospitality being the biggest risk at the moment.

lojo1000 said:

The error central banks made since 2001 was not raising rates and maintaining at a level which put inefficient and/or reckless business out of business. Keeping rates too low allows unproductive/unprofitable businesses to survive. They use scarce resources which should be used by more profitable/efficient businesses in a more productive way.

In 2001 base rate was 4%, it should not have been raised then, but by 2004 it was 4.75% and 2007 had risen to 5.5%, that was too high overall, but the biggest was lowering it to 0.5% and keeping in there for a decade, by 2010 it should have gone back to 2-2.5% and stayed there, when Covid hit it should have stayed where it was. The biggest problem with 2008 was that companies never went bust, they were propped up, the banks were encouraged to not let businesses fail and that is where the government went wrong, the dead wood in the economy suffocated new growth.

lojo1000 said:

The nature analogy is perfect. Even natural forests will benefit from wildfire/large trees falling and clearing the light for the next generation (with stronger, better adapted genes) to emerge.

You do not prop up old trees and stick the leaves back on!

Clearly this does not advocate rates at 20% and kill everything in sight but if a business does not have the strength to survive a recession, they should not be in business.

That is part of the problem though, the current approach is getting close to a scorched earth policy where nothing can grow even after the fire is out. The economy has little structural strength, a negative trade balance, too much of the economy based on domestic consumption of services, taxes which are too low to allow the government to balance the books and invest, a tax system which discourages investment, a benefits system which does not efficiently support getting people into work etc. 

In terms of survival it depends on just how much resilience you expect businesses to have. As an example Covid cost me personally around £140k. Whilst my business put on £260k of new business, gaining new customers, growing existing customers, a combination of Covid and Brexit meant we lost £280k of existing business, business that in the case of Covid just is not there to be had any more, or in the case of Brexit, the trade barriers imposed made it impossible to compete and win the work and has imposed additional costs on the work with EU countries we have retained. We then face significantly increased costs and the prospect of at best sluggish economic growth, taxes rising not for investment but because of government incompetence and worst of all uncertainty. 

I am all for businesses having to survive on merit, mine has done so so far, the business has no debt and still retains significant cash reserves, but that only goes so far, if the government first slashes and burns the forest, then salts the land, it should be no surprise if the economy struggles to survive and grow. 

Sarah1Mitty2

MattMattMattUK said:

Sarah1Mitty2 said:

OhWow said:

michaels said:

Strummer22 said:

michaels said:

Thing is only 30% of households have  a mortgage and of those only a proportion renew their rate each year.  So it is this small proportion who have to have their spending severely reduced in order for demand to reduce enough that wages and prices stop rising.  Fair would be to use fiscal policy to reduce spending power which at the same time would help with the deficit but what matters is not fair but popular (or least unpopular)

That's ignoring renters. Most landlords have mortgages which have also gotten more expensive, hence they put rent up and that affects a much larger % of the population.

Only those with no housing costs, which I suppose is the opposite ends of the spectrum from social housing paid for by benefits, to those with fully paid off mortgages, are completely immune to the increased costs of borrowing. 

Rents relate to supply and demand, landlords did not cut rents when mortgage costs fell and can not just automatically pass on increases to mortgage costs, whatever simplistic picture the TV News might present.

The obvious answer is to build more houses!

Otherwise we just keep passing this; high house prices and people struggling with an interest rate increase/ not enough empty rentals to create lower rents, down to the next generation.

I don`t think this will work, the better route is to make houses cheaper by raising rates, this is the route they are now taking.

Houses will not get cheaper because interest rates rise apart from a temporary blip, the issue is supply and demand imbalance and the only way to correct that is for dwelling construction to exceed the number of new dwellings. They are not taking this as a measure to influence house prices, but as a measure to tackle inflation and prop up Sterling. 

That doesn`t make sense, you are confusing desire for a certain property with true demand, everyone viewing property already lives somewhere, as the thread title says the cost of borrowing is rising so two things can happen, either the cost of the houses that people desire comes down, or they just stay where they already live! The government would be forced to build if "supply and demand" was causing mass homelessness, but it isn`t and they won`t!