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 :(

But to get to that situation will take a lot more than raising interest rates! A house price crash would have very destructive outcomes for the UK economy. So would the fall in demand caused by reducing consumer incomes, this would have a large impact on firms and subsequently employment. Business investment would fall in this situation and your desired change requires business investment

Also you are aware that higher interest rates generally means a higher exchange rate, which leads to falling demand for exports, again effecting firms and jobs. Again this would effect the level of investment.

I'm all for restructuring the economy, but simply raising rates to cause house prices to fall is not the way to do it and completely misunderstands the impact that this approach would have.

You can keep stating that "people will save more" or "have more money to spend" but 6.9 million households in the UK have a mortgage, with an average size of 2.3 people this is 13.8 million people with reduced incomes. A lot of people who will not have more money to spend and this will have massive knock on effects!

In order to re-calibrate the economy in the way that you are speaking we would need a long term supply side plan, based on government spending ( which is being slashed) and higher business investment (which is very low as we speak) it won't be achieved by increasing interest rates.

A house price crash would have very destructive outcomes for the UK economy.

that really depends on who you are. For the 50% or so renters out there, it's a godsend. not just that they will be in a position to buy, but because rents will likely fall too.

This attitude is precisely why we have a dysfunctional housing system. People, and our government especially, want more affordable housing while simultaneously keeping prices high. This is why we have blatantly unfair tinkering all around the housing market (right to buy, help to buy, some ridiculous portion of renters collecting housing benefits). Well, it doesn't work. At all. If you call this success, that's crazy. This is a huge problem that needs solving. You simply can't have affordable housing and houses stay at the same level. They must fall in price for any sanity to be restored.

A lot of people who will not have more money to spend and this will have massive knock on effects!

people don't have the money already. They have paper profits from inflated house prices and inflated stock portfolios. They are spending money that isn't there.

"people don't have the money already. They have paper profits from inflated house prices and inflated stock portfolios. They are spending money that isn't there."

. If you put up interest rates, it means that the 6.9 million households that pay mortgages will pay more of their disposable income each month back to the bank. Leaving them with less money to spend, that was the point that was made.

Sucks demand from the economy, people get laid off, consumer confidence falls etc.

"that really depends on who you are. For the 50% or so renters out there, it's a godsend. not just that they will be in a position to buy, but because rents will likely fall too"

What makes you think that rents won't go up to cover the cost of the interest rate?

What happens to rents as more people are forced to give up their houses as they can't afford the mortgage?

They must fall in price?

Yes thats whats been said every time their are big increases, doesn't happen.

You take far more for granted than I do, and haven't offered adequate analysis of your points.

So, higher rates will suck demand out of the market, but rents will go up? really?

when people can't afford their mortgages they will sell, but this time, not to a BTL but to an owner occupier. They can't raise rents unless the market can bear it (or they would have already).

sucking demand out will lower.... demand. In your world that's a bad thing. Not mine.

By the way, I own central London property. I am not saying this out of self interest.

But rents are likely to rise as interest rises, landlords will simply pass on the cost to their customers.

People who won't be able to afford their mortgages will sell? Well, yes, but that will then cause prices to lower and people will be in negative equity.

Also a price fall will make banks more reticent to lend, higher deposits will be needed with lower multiples of salaries. Now for this to actually have an effect in London the price crash must be really significant and this would have a massive detrimental effect on the economy as people become bankrupt, firms close and the economy generally goes down the pan.

The only people who will really benefit from a rate rise, and price fall are the cash rich who will just snap up properties and offset the increased stamp duty against future asset price rises.

If you don't understand why sucking demand for goods and services out of the economy is a bad thing there is not point arguing economics with you.

Oh and its not in my self interest either, own 2 Zone 2 properties, both paid off.

But rents are likely to rise as interest rises, landlords will simply pass on the cost to their customers.

if they can just raise rents, why don't they do it?

they can only charge what they market can bear.

Also a price fall will make banks more reticent to lend, higher deposits will be needed with lower multiples of salaries.

sanity you mean? Your tone suggests what you wrote it outrageous.

If you don't understand why sucking demand for goods and services out of the economy is a bad thing there is not point arguing economics with you.

I understand perfectly well. It will be painful. Guaranteed. But it's either going to be painful now, or crushing later.

Oh and its not in my self interest either, own 2 Zone 2 properties, both paid off.

I was saying I am not arguing from self interest. A rate rise will hurt me too.

Successive housing price crashes have done almost nothing to stop the long term trend of housing becoming increasingly unaffordable. The problem isn't solely one of housing stock supply either - even if we built a million homes in London over the next 10 years, I highly doubt prices would fall much because the capital will remain a highly attractive place to invest for a volatile global market.

The only way to change it is to stop housing being an investment - to take it out of the market. I would argue that the answer probably lies in nationalisation of land/compulsory purchase and ASSET LOCKS for the future, which mean that you can't sell a place for more than you bought it for (adjusted for inflation). Housing is for living in and not an investment, so I'd be supportive of a tax on rent and rent controls too.

It will be painful? It will be awful, million in penury and so little consumer confidnce that there will be an awful recession/depression with the associated costs of falling productive capacity and loss of skills.

"sanity you mean? Your tone suggests what you wrote it outrageous."

What kind of price crash are you suggesting? Do you understand how large it would have to be for 25% deposits and 2.5 x salary to be achievable? Do you realise what the long term economic effect of this would be? The same as mentioned above.

I really want you to offer me an analysis of how you think your proposed rise in interest rates would recalibrate the economy to the way you want it to be, I can't see it at all, and I'm an economist!

Do you understand how large it would have to be for 25% deposits and 2.5 x salary to be achievable?

so, how do you propose we have affordable housing? If things aren't affordable, prices have to come down, don't they? Or are you with the government in trying to achieve both high prices AND affordable houses. Now that would be a great trick.

and I'm an economist!

they don't call it the dismal science for nothing!

Yet one that you are happy to use to make statements, and not back them up with any relevant analysis and then use ad homs when you're asked to do so. Nice way to debate an issue, and one that shows true class.

"so, how do you propose we have affordable housing?"

A large increase in the supply of social housing! Invest in building the kind of housing that people actually want, 2-3 bedroom homes which are fuel efficient and have some garden space. Remove restrictions on building on green belt land, impose price restrictions on rent (Berlin style).

Your way doesn't work at all though, you assume ceritus paribus, that the only thing that will be effected is mortgage rates when it goes a whole lot further.

We need to wait to see what effect the April stamp duty and mortgage interest changes have on the housing market first.

I'm glad the intreast rate is highly the 50k deposit we put down on our property when we first bought our home means we have more money to spend on for luxury spends.

YABU.

In London, I don't think the BTL market is that large a determinant, it counts obviously, but I think the pool of entrants who are very close to being able to afford property keep the prices bouyant. There are lots of young relatively well paid couples who are able to afford property that are competiting for housing and its keeps the prices up.

Yet one that you are happy to use to make statements, and not back them up with any relevant analysis and then use ad homs when you're asked to do so. Nice way to debate an issue, and one that shows true class.

that wasn't a dig at you, but at the discipline. sorry it came across as insulting.

A large increase in the supply of social housing!

but once housing becomes affordable, you do know that many (most?) people who own now will have lost a ton of money. You will have the same loss in value. people will have lost tons of money and be in negative equity.

and why not just housing? to protect the wealth of homeowners?

How would it help you to be able to earn enough interest to put together a deposit if you then couldn't afford mortgage repayments due to high interest rates?

How would it help you to be able to earn enough interest to put together a deposit if you then couldn't afford mortgage repayments due to high interest rates?

same way higher rates are always supposed to help - by putting downward pressure on price. that gives each person less buying power, but, crucially, it removes a lot of players from the market. Of course, then, less of the purchase is leveraged by debt.

I dont think building social housing would have that much of an effect really, on house prices. I think it would reduce rents and make BTL less attractive to amateurs. There will probably still be a lot of people who will never be able to afford to buy in London, but we might as well make it easier for them to live.

Again, I don't see how your interest rate rise recalibrates the economy can you explain what you think would happen?

Lower rates make more investments give higher returns, but with no underlying basis (that is, in some real sense, those returns aren't backed by anything). We are seeing this now in property (though possibly not London. we have high prices, but possibly justified) and particularly the stock market. This diverts capital from more efficient higher return investments. So, those things that deserve to go bust, don't, and those investments that should be getting more capital, don't.

The positive effect is that this slows job losses and keeps consumer spending buoyant, which may work in the short term. More important, it keeps politicians in their job - until it stops working.

Google damage low interest rates. there will be a number of articles on it. when i just googled that, a recent economist article came up top, which disagreed with the idea that raising rates is a good idea (so they agreed with you. the economist is definitely on the QE/low interest side of argument). They do, however, inform the reader that credible economists take the other side of the bet.

Chilli...ok.

I get your point about zombie companies but your point about investment is quite possibly incorrect. Investment is at a low at the same time the British corporations are sitting on an all time high level of cash estimated (by the ICAEW) to be around £60bn.

Why aren't they investing? Interest rates are low so the risk is lower, they have cash so they can afford it, so why not? Well, short termism has become the rule within many of our corporations, we run them for "shareholder benefit" which is fine until you realise that most shareholders own a share for around 3 months, so it works in the benefit of shareholders to keep shares at a high value leading to business practices that do this (share buy backs/riskier finance deals) and less into long term investment. Strangely enough it also leads to higher salaries for executives who can promise these returns. Ha Joon Chang (Cambridge) reccomends a change of culture where other stakeholders such as supplies and employees interests are viewed as highly because the short term culutre of the moment is dangerous.

I don't see how raising rates will encourage investment or how consumer spending will be bouyant when 6.9 million households will be paying more each month back to the bank and therefore having less disposable income.

I do see that being a further deterent to investment though.

Good debate though, keeps me on my toes! Although I could go to bed right now..

EU IR to 0 %

Japan in negative IR.

Interesting times...

And the FED uped their rate.

UK in between, will it follow the fed or eu?

More can kicking and not addressing the fundamentals thus just delaying the inevitable crash.

UK won't follow the FED, even then it only raised it .25% which is hardly significant, the US economy is suffering more from the removal of QE than anything else.

Global issues cannot be tackled with monetary policy, its just a way of helping the economy ride the wave.

Lurked the +0.25 is signifiant.

ECB only did -0.05 after all.

I do love how you speak about everything with such certainty. Id like to see the world without unintended consequence / knock on affects and just see single things in isolation.

Well, magnitude of the change is important isn't it, the ECB going to zero effectively means that they will give banks any interest on money deposited with them, which should encourage them to lend to firms etc.

The US .25 was done at the wrong point tbh, the Chinese market plunge and the fact that growth in the US was slowing after the ending of QE meant that they should have probably waited until things had calmed down a little. It wasn't the magnitude of the change but the timing.

"Id like to see the world without unintended consequence / knock on affects and just see single things in isolation."

Where at any point have you thought that I don't consider this, in fact my analysis of the situation considers this far more than your own or chilli's who back rises.