Interest Rates Watch

[Freetodowhatiwant]

Just posting to see if anyone else is keenly watching out for the interest rate announcement. My mortgage is fixed for almost another two years anyway so I don’t have any personal skin in the game in that sense, but I have work involvement in the property market so I have a keen interest.

What I don’t understand is if the government are using interest rates as a tool to bring down inflation but are also encouraging the banks to be lenient and do things like extend mortgage terms surely the latter counteracts the desired effect on spending? Not that anyone is out spending on luxuries but instead the rising cost of living is having this effect on inflation. Although I guess it is the only real tool they have and it has in the past been proven to work.

Apologies for any sloppy wording with this, I am on my phone on the bus. Anyway, just thought I would start an interest rate watch thread. What with that and the rain.

I'm afraid I don't know, no one does at this point. I just think lots of assumptions of much lower rates in a short time frame, soft landings and business as usual are totally unrealistic.
It could go either way imo, ie we could end up with stagnation (inflation stats look good at present compared to v high prices last year) or we could face a huge deflationary wave which would lead to rate cuts but this wouldn't house prices to rise again as we would also have high unemployment, insolvencies, etc as I have already mentioned.

Reviving ahead of the next announcement tomorrow. Inflation gone down again to but sone experts still thinking BoE will put the rate up. Average fixed mortgage rates still over 5% but have gone down a bit in recent weeks due to swap rates. Press reporting a Christmas difficult period when a lot of people will be coming off low fixes.

Anyone buying/selling/changing rates soon will be watching this keenly!

What your describing is capitalism. They make it up as they go along and fiddle with numbers so long as the rich stay rich, they don’t really care.

Interesting thread. I dont think this is only a “year or two” problem , it will go on for much much longer. This is the new era of high interest and high inflation, it will easily last 5 years+. Personally i think a decade. Media will report inflation is coming down a little, but it will never be like before, plus global economy has gone to shit, every country is tied up to each other. I think struggle will be the norm going forward for a long while.

Impressive long term research @KievLoverTwo !

Vast majority of Economists were predicting a quarter percentage rise tomorrow to 5.5% (possibly the peak?)
Now some are saying it’s more likely that rates could remain the same at 5.25%.

I’m still guessing 5.5% personally.

You wont get a proper view just from looking at the raw numbers though, you have to look at inflation trends, the trend is now up for inflation and rates, back then it was down (except house prices) Inflation up = house prices down so getting caught on a tracker if rates rise and your house price drops some more isnt good, far better to fix and just concentrate on getting the mortgage debt paid down with cutbacks, second jobs etc.

5.75 would be the smart move IMO, shows they mean business and gets them ahead a bit, they are still way too late and behind the curve, on inflation but if the FED pause today they will likely pause as well leaving the door open for more future hikes. The market will react to the "guidance" speech after the event more than the actual rate change or pause.

It won't be 5.75% Crashy

It doesn`t really matter at this stage, read the paragraph in this article about pausing but remaining "restrictive" (higher for longer) and see if you agree or disagree.

More mortgage misery for homeowners as interest rates are set to rise for the 15th time in a row | This is Money

I've read it and agree with the article. I've already said loads of time that I agree with the forecast that rates will fall to about 5% by early 24 and then stay somewhere in the range between 4-5% for a long time.

I do think they will stay "higher for longer" but not quite as high as they currently are.

The historical average for base rate is 7%, I understand why they dropped rates to near zero and then held them there (to benefit bankers and VIs by getting people to keep paying their debt and borrow even more) but I dont get why they would drop them again when inflation is the threat that could cause even more damage to the financial system than a property crash? Can you explain your thinking on why we will go to 4%?

@CrashyTime I think the base rate will fall to somewhere in the range between 5% to 4% in 2024 because inflation is forecast to fall below 4% by March.

As long as that happens the BoE will be able to reduce the base rate bit by bit, eventually getting to 4%. Maybe by the end of 24 or maybe early 2025.

Of course, if inflation fails to come down as fast as expected, rates will stay higher for longer but I'm taking the view that inflation will continue to fall.

The inflation target is 2% though, and inflation has never been beaten with interest rates below the inflation rate as far as I know, so I don`t see why they would risk their credibility any further with too large a cut followed by panicky hikes when inflation spikes up again, they would look absolutely foolish and not in control.

Too large a cut Crashy? No one is talking about a big cut to interest rates.

And yes I know the inflation target is 2% but the BoE doesn't expect to get there until 2025

https://www.bankofengland.co.uk/explainers/will-inflation-in-the-uk-keep-rising

But they said it was "transitory" before? They don`t really have a clue any more than we do is the reality, I would strongly advise people not to gamble on interest rates, just fix and pay down your debt.

https://www.msn.com/en-us/money/markets/2-year-treasury-yield-rises-to-highest-level-since-2007-as-fed-signals-its-not-done-hiking/ar-AA1gZ4pA

Reviving the thread in advance of the forthcoming BoE announcement on Thursday. Many experts chucking an educated guess in at no change from 5.25%.

Article here in the Guardian:

https://www.theguardian.com/business/2023/oct/24/uk-unemployment-rises-ons-data

Mortgage rates are still comparatively high of course but a few experts think that they will come down below 4% by the spring. Anything with a 3 on the beginning of it would be much better than the current 5 and 6 point somethings we are seeing!

https://inews.co.uk/inews-lifestyle/money/property-and-mortgages/mortgage-rates-drop-below-4-summer-saving-700-2714310

A really interesting analysis reported in the Guardian into recent spending habits in the UK including how property sales are now highest amongst the over 50s. To quote:

'The UK’s housing market is picking up after a difficult year marked by falling prices and a low level of transactions. Figures from the ONS found there was only a drop in estate agency activities of 0.01% in the first quarter and 0.03% in the three months to the end of June.
A tentative recovery may be under way after the average UK house price rose 0.2% to £291,000 in August, creeping back to the peak in November 2022 of £292,187.
First-home buyers are a rarity and the market is being driven by the over-50s. Property data company Outra says the average age of homeowners tipped to move house in the next six months has increased by 3.5 years since 2022, to 52.5 years of age.
The majority of movers also possess large deposits, with most having at least £250,000 in stored equity in their homes, according to the company’s pre-mover index, indicating the majority of buyers will be much older and wealthier than the average home buyer.

Full article here in the Guardian:

https://www.theguardian.com/business/2023/oct/21/cruises-golf-and-private-health-how-baby-boomer-spending-has-kept-uk-inflation-stubbornly-high

Oh and also this from the above article tickled me: 'Within the consumer trends data is a family spending survey that has a breakdown of spending by age. It shows that consumers aged 75 and above and those aged 50 to 64 and over spent more on alcoholic drinks and tobacco (plus narcotics) than the under-30s'.

Plus a fascinating article from the New York Times analysing the UK's current economic situation, including a cooling labour market (which shows a further downward trend for inflation), but also a little insight into the data used for measuring such things.

https://www.nytimes.com/2023/10/26/business/uk-economy-data.html

The narrative is now that interest rates with stay high for longer, I wouldn't anticipate a drop for another couple of years.

Yes, given the majority view of economists it would be a surprise now if the BoE base rate didn’t stay the same at 5.25% this month.

Yes, seems it will stay at current rate for a reasonable length of time. Hoping it means there might be some mortgage rates in the next 6-10 months, for high ltv, that start with a 4 though!

I believe there already are some starting with a 4, like this 5 year fixed rate from Santander (40% deposit though)

https://www.thisismoney.co.uk/money/mortgageshome/article-12666325/Santander-cuts-mortgage-rates-Lender-offers-three-best-buy-deals-home-movers.html

They will just follow the Fed IMO.

The Fed is predicted not to raise this month so they will hold also.

I think we would have to see a fairly strong market reaction early this week in order for them not to follow the Fed. Think a clear uptick in gilt yields Monday to Wednesday or a couple of cents loss on the FX rate down to 1.18 or so.

However the general consensus seems to be one further rise this year for the Fed, so I think there is a fairly good chance of another raise at the mid December meeting.

The BOE has been a reluctant raiser on this cycle. They are raising because if they don't gilt yields and the FX will collapse, not because they actually want to fight inflation. IMO anyway. Because if they wanted to fight inflation they would have raised more strongly and earlier.

How those rate rises/lack of rises will transfer into mortgage rates who knows. These days the mortgage rate market looks increasingly decoupled from the base rate to me.

Although the mortgage rates are painful, as long as the rate is below inflation, technically you are winning.

Yes I have seen this being predicted too but I am wondering what 'high' really means. If it means 3-4% that's must more live-able with (for those of us with mortgages not for savers of course). Some people would see that as high so I am hoping that's what they mean.

I agree, they are pushed into defending the currency now, they don`t care if Joe public pays three quid for a loaf, they look at the wider picture (that affects them and the banker class) The "10 Year Yield" runs mortgage rates and bond markets are going to be volatile IMO, certainly not the time to be saddled with jumbo mortgage debt.