BOOM: Interest rates

[AtW]

"Bank of England may be forced to raise interest rates to 4% in 2023

City traders bet central bank will more than double cost of borrowing to combat soaring inflation

The Bank of England could be forced to raise interest rates to 4% from as early as next year to combat soaring inflation, despite the growing risk of recession amid the cost of living crisis.

City traders are betting the central bank will more than double the cost of borrowing from 1.75% in response to inflation at the highest levels for more than 40 years.

In a development that will heap renewed pressure on mortgage holders, the Bank’s key base rate is expected to reach 4% by May 2023, according to the path implied by financial markets."

https://www.theguardian.com/business...2023-inflation

Excellent news for savers who will be able to get 0.4% savings rates...

[mattster]

I'm old enough to remember when interest rates were always a couple of points ahead of the inflation rate.. if the predicted 18% inflation also happens next year then 4% rates seem pretty low to me - that's still -ve 14% real rate! Curious times. Glad I'm only 1 year into a 5 year mortgage fix at least.

[WTFH]

I'm old enough to remember when interest rates were always a couple of points ahead of the inflation rate.. if the predicted 18% inflation also happens next year then 4% rates seem pretty low to me - that's still -ve 14% real rate! Curious times. Glad I'm only 1 year into a 5 year mortgage fix at least.

They can't put the rates up too high because it will lead to a lot of people defaulting, which will then cause banks to crash.
If/when there's a crash in house prices it will get all the more painful. And unlike 30 years ago, the average home costs about 10x the average earnings, the peak in the 1989/90 bubble was about 6x before, and 4x after.
Back then, interest rates were 15% and inflation was 8%

[mattster]

They can't put the rates up too high because it will lead to a lot of people defaulting, which will then cause banks to crash.
If/when there's a crash in house prices it will get all the more painful. And unlike 30 years ago, the average home costs about 10x the average earnings, the peak in the 1989/90 bubble was about 6x before, and 4x after.
Back then, interest rates were 15% and inflation was 8%

Yeah, don't disagree. Youngsters today have to put up with a lot of "I endured 15% mortgage rates" type BS from their parents, who conveniently ignore the fact that the principal on their loans was a fraction of today's, and in fact the monthly outgoings even at 15% were broadly similar to today's. The fact was that back then, high mortgage rates & a low principal (with attendant high inflation) set borrowers up for easy street if and when they got through a couple of tough years early on. The likely direction of rates was down, and the real value of the debt eroded quickly. Quite the opposite today, with high principals and low rates - the only way is up and this is a tinder keg that has been primed to go off for a decade or more. Could get ugly.

[gables]

They can't put the rates up too high because it will lead to a lot of people defaulting, which will then cause banks to crash.
If/when there's a crash in house prices it will get all the more painful. And unlike 30 years ago, the average home costs about 10x the average earnings, the peak in the 1989/90 bubble was about 6x before, and 4x after.
Back then, interest rates were 15% and inflation was 8%

Yep, I remember interest rates of approx 12% would have been 1992 on the flat I bought, when we moved in 1996 the interest rate on the new mortgage was approx 8% - I thought I'd arrived :-)

[WTFH]

Yeah, don't disagree. Youngsters today have to put up with a lot of "I endured 15% mortgage rates" type BS from their parents, who conveniently ignore the fact that the principal on their loans was a fraction of today's, and in fact the monthly outgoings even at 15% were broadly similar to today's. The fact was that back then, high mortgage rates & a low principal (with attendant high inflation) set borrowers up for easy street if and when they got through a couple of tough years early on. The likely direction of rates was down, and the real value of the debt eroded quickly. Quite the opposite today, with high principals and low rates - the only way is up and this is a tinder keg that has been primed to go off for a decade or more. Could get ugly.

That BS also misses the bit about MIRAS as well

[AtW]

I'll raise you all to interest rates of 210% pa.

[Whorty]

I've said it before, but no government wants a housing crash. We as homeowners feel 'rich' because of the value of our house. We all go on Zoopla to look up how much it's worth, and think ... yeah, I'm worth £xx0,000. Feeling rich, we feel ok to spend.

Have a big house price correction, we all start to feel less rich. This makes us nervous. We cut down on spending. And bang ....

So personally, I think the government/bank will do everything to keep house prices as stable as possible. A small drop? Maybe. A crash? Not likely.

[AtW]

This time ... it's different...

[Whorty]

This time ... it's different...

Just like every other time