Interest rates going up on Thursday?

[FabulousSophie]

The financial markets are 90% certain the Bank of England will finally pull the trigger on its long expected rising cycle in interest rates. If so, will this affect sentiment in an already stagnant property market?

You would need to be on 80k plus deposit to afford 380k with today’s tighter lending.

We looked at moving last yr but decided against it as it was a short term move & the bank wanted to lend less of a multiple compared to what we borrowed before despite earning more & with a bigger deposit.

I think the reason a rate rise is considered likely, though by no means certain, is that BOE wants some headroom to cut rates again post Brexit.

For rates to go up, and up again the economy would need to be growing.

House prices may still fall if unemployment increases.

The 90% chance means 90% of pundits think at least 5 out of 9 policy committee members will vote for a rise. It doesn't mean it's in the bag.

Zone 2/3 SW & SE London were defo affordable. I was born & raised there.

@glintandglide are you seriously saying that london has not become less affordable?

It is a bit out of date but this page has lots of interesting graphs that show various measures that are a proxy for affordability (UK, not just London).

No. Where did I say that?

DH and I bought a 3 bed flat in zone 1 in 2005 for £455k. Admittedly it was in a terrible state. We sold it 5 years later for more than 2x our purchase price. More recently I’ve seen similar flats in for 3.5x what we paid. There were pockets of relatively affordable housing in central London before it became the money laundering capital of the world.

We've just had a mortgage offer to a 5 year fixed for 1.92% want to get it all signed before they go up. We are planning to pay off 10% a year. I've had mortgages for 15 years and I've never had such a low rate, my last 2 were 4.98 and 3.8, the problem is many lend on the basis of interest rates staying down and if they doubled to 4% they'd not be able to afford them and then we get an influx of repossessions. I've always done a worse case of rates tripling and still been able to afford my payments.

HRH my first central London flat was purchased in 2005 too, and was £405k. That was NOT an affordable amount then, DH was earning 6 figures for us to be able to buy it. It was 13 years ago.

I just read that markets are now pricing in a 91% chance that interest rates will go up tomorrow. I expect it will happen, but the Bank of England will give lots of soothing reassurance that this rise will not affect anything. Which begs the question: why do it, if it is not going to be felt?

If they dont raise the £ is going to keep dropping like a stone.

£ below € soon? Holidays are going to get a whole lot more expensive if they dont raise.

I keep a close eye on the market (spreadsheet updated each week) and there are the msot number of 1-2 bed flats for sale since I began monitoring 2015. Over half are reduced with no chain. That says to me landlords are exiting the market and fast. Often seeing reductions after only a week or two. Interesting winter ahead.

Glint - neither DH or I were earning 6 figures then but our combined income did come to that. We had a 10% deposit and borrowed the rest at 4.5% - I think the monthly repayment was around £2.2k. It was doable. Today we’d need £160k deposit, a combined income of close to £400k and the monthly repayment would be closer to £6k for the same property.

Answer to Alexalee.

We bought in 2013 for £135k. 3 bed terraced in SW. Mortgage with interest rate of 3.99% initially.
Sold this year for £208k. Had paid off some mortgage and overpaid quite a bit.
Had decent equity, plus lower interest rates.

Buying a 4 bed semi for £308k. Interest rate is 1.89%, fixing for 5 years and extending the term of the mortgage.

Our repayments are about £200 per month more, but we used to overpay by more than that.

...and they're now up to .75. Which in this crazy world, qualifies as dizzying heights.

MarkCarnage It is a first step in the right direction back to normality. It is worth celebrating!

Where do you see normality at Sophie. Historically 5% ... can't see it getting to 2% in the next 2 years tbh especially if we go into recession after brexit which I feel is inevitable

Alexalee Mark Carney is going to say in his press conference what level the bank currently sees as normal (in other words, neutral). I have read it could be somewhere around 1.5% to 2.5%, which means 1.5% to 2.5% would have the same effect as a previously normal (neutral) level of say 5%.

Wow they actually did it. Now who predicts they will be cut after Brexit?

If anything I think they will go up after Brexit. If there is a deal and no crash then they will need to go up to rebalance the bounce. If there is a crash with no deal then they will need to stay where they are or go up to prevent importing inflation via a run on the £. The further aspect is that the US is already ahead of the tightening curve compared to 2 years ago and even Japan is working towards normalising.

"Normal" ought to be above inflation target rate of 2% to give time value of money reward and prevent excessive credit risk (so 2.5-3.0). If inflation doesn't continue its drift back to target then it could be even higher to rebalance especially if the Govt chooses to cushion Brexit with fiscal stimulus.

Interesting comment that BoE is not expecting London house price falls to spread given everywhere else hasn't seen same price rises (ours are still at 2008 levels) and BTL is concentrated there.

Just as a footnote, there ought to come a time when banks prefer to lend to productive parts of the economy rather than householders trading existing housing stock. At that point residential mortgage rates could in theory end up with a higher margin relative to base rate than currently and so increase further and faster.

Good points how

Roger Bootle of Capital Economics, writing in the Telegraph today, thinks there should be another interest rate rise in November.

While I agree with Roger I think it is unlikely to happen and MC's comments following last week's rise were all about managing upwards expectations. If I were a currency speculator I would be betting on 1/4 post March 2019 with another 1/4 in the following 3 months.

@howabout Roger also thinks there will be another two rises next year, rather than the single one expected. He was saying ages ago that the BoE would raise in August, while at the time loads of other economists thought it unlikely, so I am inclined to give him time of day.