Reply to: BOOM: Interest rates

[SueEllen]

Interest rates only predicted to go up to around 4%, though that won't be enough if inflation continues to rise.

Interest rates can't control inflation as the factors are external such as energy prices.

Energy prices are causing businesses problems already.
In fact lots of small businesses e.g. butchers, delis, knick-knack shops, restaurants that have premises with owners over 55 are folding already. The owners have decided it isn't worth continuing. (I walked past a closed down restaurant a couple of hours ago and there is a sign up as the owner is trying to get rid of their lease.A butchers not to far away has closed down.)

Medium size businesses with multiple premises are consolidating if they can to have one or two.

[BlasterBates]

Interest rates only predicted to go up to around 4%, though that won't be enough if inflation continues to rise.

[SueEllen]

Inflation is ruinous for the private sector. The BofE and the public sector are protected with inflation-proof pensions and salaries.

Seems you missed all the strikes that have been occurring or going to happen.


But then we know a lot about your brain.

[hugebrain]

https://theconversation.com/if-inter...nces-be-189153

"Central banks are having to choose between ruinous inflation or ruinous interest rates."

Inflation is ruinous for the private sector. The BofE and the public sector are protected with inflation-proof pensions and salaries.

So the people deciding whether to fight inflation are the people that benefit the most from inflation. It will be a massive wealth transfer to themselves and will increase inequality in society.

I wonder which they’ll choose.

[Whorty]

Whilst I agree completely that the last thing the govt wants is a "proper" housing crash, I'm not sure they still have many tools left to stop one. They've pulled it off a few times over the last decade with various help to buy schemes and stamp duty holidays, and arguably we would be in a better place now if they hadn't done so, with a reasonable correction behind us. I can't see what they could do now to stop prices falling because they have no way of manipulating mortgage rates down. A moratorium on repossessions could stem the worst of the blood shed I suppose but at what cost?

Totally agree. I wonder what ponzi svheme they'll come up with next to keep house prices high .... popcorn time

[dsc]

They really got themselves in a corner as pushing interest rates higher will definitely cause an even bigger recession which is already pretty massive due to Brexit, but if they do bugger all they'll end up with loads of small businesses folding and most likely a recession due to this anyway. Remember that the effects of increasing interest rates are visible after 2-4 quarters, so it's like trying to control an object with loads of lag (bit like Covid and late lock downs), it's hard and there's loads of external factors.

Best of luck then...

[mattster]

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.

Whilst I agree completely that the last thing the govt wants is a "proper" housing crash, I'm not sure they still have many tools left to stop one. They've pulled it off a few times over the last decade with various help to buy schemes and stamp duty holidays, and arguably we would be in a better place now if they hadn't done so, with a reasonable correction behind us. I can't see what they could do now to stop prices falling because they have no way of manipulating mortgage rates down. A moratorium on repossessions could stem the worst of the blood shed I suppose but at what cost?

[DealorNoDeal]

https://theconversation.com/if-inter...nces-be-189153

"Central banks are having to choose between ruinous inflation or ruinous interest rates."

[Whorty]

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

Just like every other time

[AtW]

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

[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]

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

[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

[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 :-)

[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.