Debate House Prices


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Inflation shock leaves markets fearing three interest rate rises this year

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/10/cnrates110.xml
Investors have bet that the Bank of England will have to raise interest rates as many as three times before the end of the year.
Swap rates - the key money market measure reflecting traders' expectations for borrowing costs - rose at the fastest rate since Black Wednesday 16 years ago after a "shocking" rise in factory gate inflation.
In scenes described by one observer as "carnage", traders embarked on a massive sell-off of UK government bonds, pricing in the likelihood that the Bank's Monetary Policy Committee will lift the official base rate to 5.75pc by the end of the year.
Fantastic - that should bring interest rates back in line with what the risk the rest of the market has priced in and save the BofE further embarrassment.


cnrates110.gif

The only way is up.
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Comments

  • WTF?_2
    WTF?_2 Posts: 4,592 Forumite
    The bottom line with inflation is that as it rises, of course real interest rates will go up.

    If they didn't go up then lenders would be losing money if they loaned out at anything close to the central bank interest rate.

    It doesn't matter what fiddled figures the government chooses to present to us, you can bet that the people in the business of lending money know exactly what the real rate of inflation is and aren't going to loan at, say, 7% (official Central Bank IR 5%) when inflation is running at >10%. They will set their own interest rates that reflect the fall in the value of money.

    Also, those buying debt on the international bond markets will know just how much the currency is being debased by too - so higher Sterling interest rates (from the Central Bank) will be a must in order to attract credit from international lenders.


    This is probably close to the worst possible time to buy. Prices haven't come much off their peak yet and IRs are set to go higher alongside a worsening economy. At least someone who bought in mid 2007 can say that they didn't see this coming (though they could have if they did their research) but anyone buying today, with access to all the information coming out on the economy and markets, would have to be an absolute simpleton to borrow a lot of money to buy a property. :confused:
    --
    Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.
  • dannyboycey
    dannyboycey Posts: 1,060 Forumite
    !!!!!!? wrote: »
    This is probably close to the worst possible time to buy. Prices haven't come much off their peak yet and IRs are set to go higher alongside a worsening economy. At least someone who bought in mid 2007 can say that they didn't see this coming (though they could have if they did their research) but anyone buying today, with access to all the information coming out on the economy and markets, would have to be an absolute simpleton to borrow a lot of money to buy a property. :confused:

    I wish this message could open in a pop-up window everytime someone visits this forum! Still lots of threads with people buying or considering buying. I don't get it personally, but they wont be told - as soon as you mention this, they spout on about how "my house is a home, not an investment" and other such twaddle to convince themselves they are doing the right thing. I've come to the conclusion that there are simple lifeforms that walk among us, masquerading as 'people'.
  • slipthru
    slipthru Posts: 611 Forumite
    Part of the Furniture 500 Posts
    Roll on interest rate rises.
    In Progress!!!
  • Generali
    Generali Posts: 36,411 Forumite
    10,000 Posts Combo Breaker
    !!!!!!? wrote: »
    The bottom line with inflation is that as it rises, of course real interest rates will go up.

    If they didn't go up then lenders would be losing money if they loaned out at anything close to the central bank interest rate.

    It doesn't matter what fiddled figures the government chooses to present to us, you can bet that the people in the business of lending money know exactly what the real rate of inflation is and aren't going to loan at, say, 7% (official Central Bank IR 5%) when inflation is running at >10%. They will set their own interest rates that reflect the fall in the value of money.

    Also, those buying debt on the international bond markets will know just how much the currency is being debased by too - so higher Sterling interest rates (from the Central Bank) will be a must in order to attract credit from international lenders.


    This is probably close to the worst possible time to buy. Prices haven't come much off their peak yet and IRs are set to go higher alongside a worsening economy. At least someone who bought in mid 2007 can say that they didn't see this coming (though they could have if they did their research) but anyone buying today, with access to all the information coming out on the economy and markets, would have to be an absolute simpleton to borrow a lot of money to buy a property. :confused:

    Surely as inflation rises real interest rates (that is interest rates adjusted to take account of inflation) fall. They have to rise even to stay at the same level plus central banks will also tend to increase them by some extra to help inflation fall.
  • Snooze
    Snooze Posts: 2,041 Forumite
    1,000 Posts Combo Breaker
    I wish this message could open in a pop-up window everytime someone visits this forum! Still lots of threads with people buying or considering buying. I don't get it personally, but they wont be told - as soon as you mention this, they spout on about how "my house is a home, not an investment" and other such twaddle to convince themselves they are doing the right thing. I've come to the conclusion that there are simple lifeforms that walk among us, masquerading as 'people'.

    :T

    Couldn't agree more, especially your last sentence. Muppets the lot of them.

    Rob
  • zappahey
    zappahey Posts: 2,252 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker
    I wish this message could open in a pop-up window everytime someone visits this forum!

    The thing is, the vast majority of people don't visit this forum, or others like it. Every discussion I have, I'm being told that it's only a bit of stabilisation because everyone knows that, in the long term, prices of houses always go up.

    That's what you're average man in the street is thinking.
    What goes around - comes around
  • pickles110564
    pickles110564 Posts: 2,374 Forumite
    Snooze wrote: »
    :T

    Couldn't agree more, especially your last sentence. Muppets the lot of them.

    Rob

    Who is the muppet? You without anything and very bitter and twisted at others who are about to buy or Me in the property game to make money over the very long term?
    I have been through one correction before and know that we will go through over ones in the future.
    Go out there stop dithering and find yourself a bargain and then get on with your life.
  • WTF?_2
    WTF?_2 Posts: 4,592 Forumite
    Generali wrote: »
    Surely as inflation rises real interest rates (that is interest rates adjusted to take account of inflation) fall. They have to rise even to stay at the same level plus central banks will also tend to increase them by some extra to help inflation fall.

    Sorry, when I said 'real interest rates' I meant actual interest rates charged to borrowers, not the 'real interest rate' terminology used for inflation-adjusted rates.
    --
    Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.
  • Zammo wrote: »
    cnrates110.gif
    Looks like they are pretty accurate in their predictions. I guess we are going back to around the long-term average for a few years.

    zappahey is right, people in the street don't know about this stuff. I read another forum where someone posted about needing to sell but they are in negative equity already. One of the replies suggested hanging on and seeing if the market picks up. People just don't have a clue about the underlying economics.
  • BenL
    BenL Posts: 3,189 Forumite
    What are the figures that come out each month about mortgage approvals? 60,000 or something a month still at the moment?

    I have come to the conclusion that these people must be reading "The Star" as the front page is full of Big Brother instead of doom and gloom on the economy like the other papers.
    I beep for Robins - Beep Beep
    & Choo Choo for trains!!
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