To be pissed off about mortgages rates being so low and down to 1%

[feellikeahugefailure]

All in the headlines today about the 1% mortgage to last 10 years.

Oh great so landlords and those lucky enough to own will be paying even less than the have nots that cant afford to buy.

I doubt my rent will be going down, but the tiny savings I have towards a deposit and emergencys will be earning less interest than inflation :(

do you have a source?

I assume the level of debt you state is net debt, which includes assets. if we are in another housing bubble (perhaps this isn't the case, but let's say) you have to really discount those assets.

You still haven't managed to offer a decent reason why interest rates should be raised now, or to counter my analysis of what would happen if they did raise them.

I didn't say that they should . I told the op that she would need a time machine for raising interest rates to help her.

I think it was from the ONS, on phone can't find it atm.

It did include student debt and mortgage debt.

www.theguardian.com/money/2016/feb/29/consumer-borrowing-biggest-increase-decade-bank-of-england-credit-cards-loans

“With the average mortgage loan-to-income ratio now at a record high, the case for raising interest rates to discourage households from accumulating debts they will struggle to repay continues to strengthen.”

We have never had such tight control of new lending on mortgages. The Bank of England have worked very hard on the issue. For new loans people are not allowed them unless they could cope with say 6% interest if the mortgage offer is 3%. We are in a very controlled tight new regime including the very recent new restrictions on buy to let lending too. I don't like it as I want free markets but it certainly means people are nothing like as exposed as they were in the past.

Also plenty of us have used the low interest rates to pay down debt. I paid off my mortgage over a year ago. I don't agree that everyone is using this period of low interest rates to let their borrowings soar.

We have never had such tight control of new lending on mortgages.

Compared to what? A few years ago where most mortgages were self cert?

The housing market stopped being a free market a long time ago.

Well economists, is it low interest rates or QE causing asset price rises?

I'd be more in favour of QE.

It is the criteria as to who can borrow which has been imposed in the wake of the credit crunch which is part of the problem in making it so hard for so many people currently to get mortgages. In the past most of the time we did not have self certification mortgages. They were quite rare.

Don't know what causes house prices rises but remember they are mostly in London so that correlates to where the jobs are. PWC has a 17% increase in graduate applicants in London and cannot get people to work out of London even though housing as a proportion of salary outside of London is so much cheaper. So something is drawing people to work in London. My polish handyman who has lived over here for 20 years earlier this week was saying he has never been so busy as London is booming - for work it is the best place although horrible to live here or words to that effect he said.So we have lots of people in London prepared to work very hard so presumably lots of demand. Take myself off to the village near Sunderland where my mother was from and houses today cost up to £50k (if you're lucky) and if you did something like set yourself up as a cleaner no one would hire you as no one has the money to pay.

Low mortgage rates are creating more demand. Think of how much less attractive BTL and buy to leave would be if rates were higher. It would wipe out most expected gains. That would shrink the market of buyers considerably.

Buy to leave is almost universally cash buyers so mortgage rates have no effect on demand at all.

BTL buyers are a lower determinant off demand than normal families so they're effect on prices is less.

Main reason for house prices rising in London? A growing population with rising prosperity, and much lower supply than there is demand. For every person who can't afford a house here, there is someone who is in a well paid job that can. But for every house that comes up for sale there are a whole group of people who are able to buy it.

In the rest of the country most areas house prices are quite affordable.

BTL buyers are a lower determinant off demand than normal families so they're effect on prices is less.

I am not sure how it follows that the BTL effect is remotely negligible.

low interest rates are certainly not the only determinants. it's a perfect storm, with some of the additional factors you mentioned. but low rates are part of the problem.

think of how precarious our current situation is. the threat of small rises in the US adversely affected the US markets. We can't move from this position now. How is that healthy?

We can't move from this position due to the uncertainties caused by external factors. We have low inflation (caused by low oil prices and the supermarket price wars) so that corresponds that we should have low interest rates, but also there are other factors. The Chinese economic slowdown, the issues with the EU zone etc etc. Rates are not being kept low to benefit households but in an attempt to keep the low levels of growth that we currently have going. The Government have shied away from more QE and are slashing spending, firms are not investing so something has to be done, this is all they've got in the locker.

We can't move from this position due to the uncertainties caused by external factors.

that's just what some economists are saying, and that's not universally accepted. Some might say that the low interest rates are causing the problems. we have little savings. We have an economy based on consuming goods produced by other nations. We don't produce things of value. We have an outrageously high cost of living due to high housing costs.

Buy to leave is almost universally cash buyers so mortgage rates have no effect on demand at all.

the first part doesn't necessarily mean the second isn't a factor. Buy to leave aren't being rented out, so the basis for investment is that the price will rise (or not fall as fast as other investments). That case is supported by a number of factors - low supply, high demand, and yes low rates.

Its pretty much universally accepted that the current effect of an interest rate rise would be negaitve Chili, can you explain to me how the raise would be beneficial in the short and long tem? I can't really forsee a way of it being beneficial in either and although what you say is true, the blunt instrument that is monetary policy is not going to close the trade deficit on its own it would take a massive change in government economic policy to do this.

Buy to leave isn't effected by interest rates as the buyers are CASH buyers, so raising interest rates wouldn't effect demand for people who ywant to do this would it? Therefore the impact of this on their demand market would continue to effect supply and demand even if interest rates rose.

Its pretty much universally accepted that the current effect of an interest rate rise would be negaitve

there's no doubt it will be bad in the short term, which is all that governments are interested in. in the long term, it will shift our broken economy away from consumption and towards investment and production.

Buy to leave isn't effected by interest rates as the buyers are CASH buyers, so raising interest rates wouldn't effect demand for people who ywant to do this would it?

of course it would, as I explained earlier. it would put downward pressure on price. BTL becomes harder. prices come down as houses become less affordable (classic effect of high rates) and foreign buyers wouldn't see it as a good investment, they wouldn't buy.

are you claiming that interest rates won't effect prices? of course they would. but it will doubly effect people for whom a purchase isn't a dwelling but an investment. you have to live somewhere, but if London property turns into a bad investment, they will leave the market.

There is no buy to leave in much of the country and much of London. It's just been an issue in prime central London and the new 12% (and 15% if propery held in a company) has crushed that market almost stone dead in the last year or so.

Buy to let - we are in interesting times and buy to do up and sell within a year. For most people who buy one property to do up and sell on within the year that marked is now killed by the state too (which means houses will stop being as improved as now) as the new extra stamp duty (from 6 Aptril) is often the profit that person would make - 100% of the profit - in those buy to do up transactions. Buy to let from 6 April there is the new stamp duty which is stopping loads of people buying second homes, buying with their child and buying as a small landlord (which is most landlords).

My son who is currently looking to buy is waiting to see what effect 6 April will have. Perhaps the rush of buy to let landlords buying before the April deadline will then be over and prices might stablise a bit or at least property won't be sold the second it is on the market.

As for investment chili is right - people invest to make a profit so the pure investors will just move to a different form of investment if interest rates get higher than the rents they can charge whether that is residential property or commercial - plenty of reasonably well off UK residents put some of their pension fund into commercial property or outside of it invest in it. Residential is not the only choice.

Today's FT writes about the same trend - high stamp duty crushes upper end of London market

"Developers scrap plans to turn offices into luxury flats

Developers are reversing plans to convert offices in central London to luxury apartments after the slowdown in the high-end residential market.
A series of U-turns on development projects appears to herald a significant change in a market that saw Westminster alone lose 4.4m sq ft of commercial space to housing in four years as the post-crisis luxury housing boom fuelled residential construction."
www.ft.com/cms/s/0/2be5b8cc-e222-11e5-8d9b-e88a2a889797.html#ft-article-comments

"in the long term, it will shift our broken economy away from consumption and towards investment and production."

Hmm, in what way would a reduction in investment (due to an increase in interest rates) or an appreciation in the exchange rate (due to the increase in interest rates) help this?

Have you any idea how long or deep a recession caused by a big drop off in consumption would (it accounts for 65% of AD).

Come on, you spout the ideas but you don't actually offer any analytical backing?

I also think that a fall in prices alongside an increase in interest rates would be beneficial for people who are cash buyers, who would offset the increase tax rates with the price fall and wait out the economic storm caused by it and wait for asset prices to rise, as they inevitably will.

I understand people's frustration with low interest rates but the negative impact on the economy would be deep and lasting.

there's no doubt it will be bad in the short term, which is all that governments are interested in. in the long term, it will shift our broken economy away from consumption and towards investment and production.

totally agree chilli.

London looks like its on the edge. Lots of foreign buyers have put down a deposit and are failing to complete. The supply of million pound flats in london being built far far outstrips demand.

Hmm, in what way would a reduction in investment (due to an increase in interest rates)

people will save. that money that's not spent will be spent on investment. with high interest rates, people will stop parking money in the absolutely useless form of bricks and mortar residence (isn't it odd that that's a way to make money? Buy a house and wait? How can that possibly generate value?).

Have you any idea how long or deep a recession caused by a big drop off in consumption would (it accounts for 65% of AD).

have you any idea of how long and deep a recession can be if you have rock bottom interest rates for 20 years? Look at japan. That's basically where we are headed. we have a few advantages over japan, but not many.

Come on, you spout the ideas but you don't actually offer any analytical backing?

what's the backing that low interest rates are working? I see an inflated stock market, an inflated housing market, and swathes of part time jobs. is this a successful policy?

I understand people's frustration with low interest rates but the negative impact on the economy would be deep and lasting.

that's the idea. maybe we can return to building things instead of buying things. this isn't sustainable, and we are finding that out the hard way. we shouldn't have lowered rates 7 years ago because, as you correctly say, the pain will be much worse now.

"people will save. that money that's not spent will be spent on investment. with high interest rates, people will stop parking money in the absolutely useless form of bricks and mortar residence"

People won't save, or not enough of them will, a significant increase in interest rates will see a huge number of the population have far lower disposable incomes because they will pay more back to the bank each month. This will lower consumption, and the multiplier will see to it that this will end with a recession. Also with higher rates we have the Keynsian paradox of thrift, we want people to spend, but they will save their money. Are you really advocating big drops in demand in order to "fix" the economy?

"what's the backing that low interest rates are working? I see an inflated stock market, an inflated housing market, and swathes of part time jobs. is this a successful policy?"

At least we have some growth, some jobs, the stock market has been boosted by QE more than low rates, I agree about the housing market, but again thats been boosted by QE too.

The Japan issue is different, it for one has a higher savings rate and lower consuption rate, as well as the currency appreciating! Both of which would be the effect on a higher interest rate.

So you'd back a recession and the unknown effects of what it would cause in order to lower house prices? What would happen to the firms you are backing to start manufacturing things during this time?

Great, is this for your own advantage or society's?

Feelings btw, why are you on another thread pleading poverty and needing payday loans let bemoaning savings rates on here?

If you've had a payday loan your credit rating won't get you a mortgage.

At least we have some growth, some jobs, the stock market has been boosted by QE more than low rates, I agree about the housing market, but again thats been boosted by QE too.

we've got anaemic growth during a "recovery". we are on the edge of another recession. While you see growth, most people haven't seen any of it. Fringe parties are being elected in all over the developed world. If this is recovery, I would hate to see a recession.

And when the next recession hits (which may be soon), where will rates go? Negative? Countries are toying with that now.

This is going to end badly.

The state borrows a lot at present so is probably quite glad interest rates are low. When I had £1.3m of mortgage debt and no savings low interest rates were from a personal point of view pretty good. Bit unfair on savers though.

Lurked my view on this is not biased or selfish on my own circumstances. I want a sustainable economy, not one that is propped up by ZIRP and QE. As chilli puts so well about having an economy based on investment and production, not consumption.