Expected Mortgage Interest Rates

Sarah1Mitty2

Jonesy1977 said:

MattMattMattUK said:

Sarah1Mitty2 said:

High interest rates are healthy, people who don`t want to take risk in stock markets etc. get rewarded for saving.

That is not healthy though, economies grow through investment, not by money sitting in savings accounts. 

Ideally one wants an environment where investment is rewarded, interest rates are low, but corporation tax and regulatory requirements benefit investment and reinvestment rather than borrowing on money markets.

Very true.  High interest rates may be beneficial for individual savers but it also means business is unable to borrow, invest and create jobs, fund wage rises etc.   

 How did business survive through most of history when rates were much higher? The property bubble won`t survive, business will be fine eventually (except EA`s and property developers)

Sarah1Mitty2

MattMattMattUK said:

Sarah1Mitty2 said:

High interest rates are healthy, people who don`t want to take risk in stock markets etc. get rewarded for saving.

That is not healthy though, economies grow through investment, not by money sitting in savings accounts. 

Ideally one wants an environment where investment is rewarded, interest rates are low, but corporation tax and regulatory requirements benefit investment and reinvestment rather than borrowing on money markets.

So how did economies grow in the past when people got decent rates on savings? People depositing savings at the bank allows the bank to lend to other people and businesses!

MattMattMattUK

Sarah1Mitty2 said:

CSI_Yorkshire said:

It's certainly scary if you misunderstand "what a 10 year fix must be quoted as reverting to" as "what the interest rates will be in 10 years".

And ignore Crashy's nonsense.  There is no particular interest rate that is or isn't "healthy" overall in isolation.

Last 15 years will be considered "unhealthy" in future debates IMO (except the early period where the banking system was propped up) as all that has been encouraged by super low rates is people borrowing to join a property bubble.

The low interest rates in much of the world allowed for fairly steady growth, though in the UK because of the way our economy and particularly corporation tax is structured it was generally used for debt increases rathe than growth, that and with the failure to balance the fiscal books and then Brexit we were always going to struggle with growth.

Property prices are not a bubble, they are a result of imbalanced supply and demand, there will be no bursting bubble or significant drop because we have had and continue to have high net immigration, far below the levels of housebuilding, though affordability could apply a small amount of downward pressure in the short term. 

RelievedSheff

Sarah1Mitty2 said:

Jonesy1977 said:

MattMattMattUK said:

Sarah1Mitty2 said:

High interest rates are healthy, people who don`t want to take risk in stock markets etc. get rewarded for saving.

That is not healthy though, economies grow through investment, not by money sitting in savings accounts. 

Ideally one wants an environment where investment is rewarded, interest rates are low, but corporation tax and regulatory requirements benefit investment and reinvestment rather than borrowing on money markets.

Very true.  High interest rates may be beneficial for individual savers but it also means business is unable to borrow, invest and create jobs, fund wage rises etc.   

 How did business survive through most of history when rates were much higher? The property bubble won`t survive, business will be fine eventually (except EA`s and property developers)

You could throw your question on its head and ask how did EAs and property developers survive when rates were much higher?

People always need somewhere to live and we have a chronic shortage of housing in this country.

ader42

In my experience it is normal when people get 5% on their savings in the bank, BOE base rate is normally around 7% and stock market growth is normally around 9%

Even back in the 80s/90s it was normal for a monthly mortgage payment to be over 50% of the household take home pay (with both adults working full-time e.g. in public sector jobs such as NHS) - and this was a young couple in a 2 bed starter home. 

Younger people have different expectations as they have never known anything different to abnormal rates and have been encouraged to get debt, debt, debt. 

Funny how we had massive stock market booms before 2000 when rates were much higher… 

lmitchell

After this morning's dreadful PMI readings it's anticipated that inflation will now fall to less than 4% by the end of 2023, which will accelerate both the peak of bank rate and the timeline for cuts.

Capital Economics remains bullish about cuts starting from June 2024 down to 3% by Q3-Q4 2025.

Strummer22

lmitchell said:

After this morning's dreadful PMI readings it's anticipated that inflation will now fall to less than 4% by the end of 2023, which will accelerate both the peak of bank rate and the timeline for cuts.

Capital Economics remains bullish about cuts starting from June 2024 down to 3% by Q3-Q4 2025.

Plenty of conflicting data - employment and wages putting upward pressure on services and core inflation, but PMI, production inputs costs, etc, all going in the other direction. I would argue that wage increases are in response to, and not (at the moment) much of a driver of inflation. Employment is not going to change quickly as job vacancies remain high by historical standards.

In my view there's plenty of evidence that the rate rises we've had so far will be sufficient to reduce inflation to 2% at some point next year. BoE may want to go one more rise next month, but I think would then pause.   

lmitchell

Strummer22 said:

lmitchell said:

After this morning's dreadful PMI readings it's anticipated that inflation will now fall to less than 4% by the end of 2023, which will accelerate both the peak of bank rate and the timeline for cuts.

Capital Economics remains bullish about cuts starting from June 2024 down to 3% by Q3-Q4 2025.

Plenty of conflicting data - employment and wages putting upward pressure on services and core inflation, but PMI, production inputs costs, etc, all going in the other direction. I would argue that wage increases are in response to, and not (at the moment) much of a driver of inflation. Employment is not going to change quickly as job vacancies remain high by historical standards.

In my view there's plenty of evidence that the rate rises we've had so far will be sufficient to reduce inflation to 2% at some point next year. BoE may want to go one more rise next month, but I think would then pause.   

Wage increases have always been in response to inflation in this cycle! Inflation didn't occur because we were all out queueing to buy brand-new cars. It was all supply-driven.

BoE's last forecasts said inflation wouldn't get under 4% until May/June 2024, yet it's now more likely than not to happen by the end of December. The BoE have been continually behind the 8-ball on this and have let the whole country down. Andrew Bailey must walk sooner rather than later. The PMI data on services - which accounts for 80% of our economy - should be enough to hit the pause button now IMO.

RelievedSheff

Should be enough but it won't be!

There are more rate rises to come.

Strummer22

lmitchell said:

Strummer22 said:

lmitchell said:

After this morning's dreadful PMI readings it's anticipated that inflation will now fall to less than 4% by the end of 2023, which will accelerate both the peak of bank rate and the timeline for cuts.

Capital Economics remains bullish about cuts starting from June 2024 down to 3% by Q3-Q4 2025.

Plenty of conflicting data - employment and wages putting upward pressure on services and core inflation, but PMI, production inputs costs, etc, all going in the other direction. I would argue that wage increases are in response to, and not (at the moment) much of a driver of inflation. Employment is not going to change quickly as job vacancies remain high by historical standards.

In my view there's plenty of evidence that the rate rises we've had so far will be sufficient to reduce inflation to 2% at some point next year. BoE may want to go one more rise next month, but I think would then pause.   

Wage increases have always been in response to inflation in this cycle! Inflation didn't occur because we were all out queueing to buy brand-new cars. It was all supply-driven.

BoE's last forecasts said inflation wouldn't get under 4% until May/June 2024, yet it's now more likely than not to happen by the end of December. The BoE have been continually behind the 8-ball on this and have let the whole country down. Andrew Bailey must walk sooner rather than later. The PMI data on services - which accounts for 80% of our economy - should be enough to hit the pause button now IMO.

Unfortunately the opinion of us schmucks on a forum counts for nothing! Although maybe with crashy-types around that’s not such a bad thing after all…