6% mortgage rates; trouble a'ht Mill

[Twiglets1]

This is a new 6% mortgage rates thread as the last one is almost full.

Thanks to KievLoverTwo for suggesting the second part of the title to reflect all the squabbling these threads are causing. Which could be a thing of the past of course. But realistically, it won't be.

The fall in demand says otherwise, and salary increases are being eaten up by cost of living increases and debt on MUCH bigger mortgages than people had in 2008, plus when people see houses not selling and price falls they hold on to get a cheaper property, that is human nature. In general I would say people are worse off than they were in 2008 and more in fear of losing their job, none of that helps the property bubble.

Historical average base rate is 7% for the UK. Not sure why people are latching onto the 3.5% number (well I do know, and for sure I know why the vested interests that sell mortgage debt are latching onto it) Can anyone articulate their economic thinking around the reasons for base rate "settling" at 3.5% (without posting articles from vested interest "experts")?

I only mentioned 3.5% in my post as thats what i keep reading. But personally have no idea. It doesnt really make sense why they would work hard to being inflation down to then drop the base rate so low in such a short amount of time. Surely inflation will just spike again?

The average rate in the UK is 5.9% , that is from 1694 to today.
Over the last 50 years it's 9%
Over the last 20 it's 3%

"Over the last 20 it's 3%"

There you have it folks, all to save the bankers and their precious Ponzi debt scheme and the reason we are in this mess today, large numbers of small businesses are going to go bust as people tighten their belts to pay back their Ponzi loans at higher rates, absolutely shocking excuse for an "economy", the property debt bubble should have been tamed years ago with higher rates before it got this out of hand. No way out now without loads of financial pain.

It doesnt really make sense why they would work hard to being inflation down to then drop the base rate so low in such a short amount of time. Surely inflation will just spike again?

Exactly, this happened in the U.S in the 1990"s and the FED for sure won"t want to repeat that mistake, the BOE (although I think they would love to start stoking the bubble again) will follow the FED or risk Liz Truss bond market moment - The Sequel.

Without (self confessedly) knowing anything in regards to economic macro inflationary cycles you’ve just done better than 95% of this forum in your understanding of inflation and its effect on interest rates. Well done! :)

The ‘expectation’ of rate cuts were enough to get the banks fighting over custom and cutting products as much as possible, that’s why it was a ‘window’ before the abilty was taken out of their hands.

You are correct about inflation. With that expectation’ of rate cuts, stocks markets are at all time highs and are in a ‘melt up’. By massaging those economic statistics (to avoid recession and feign growth) they are making the secondary inflationary wave worse and the banks won’t be able to drop rates. It’s called stagflation.

They will only be able to cut rates once the economy is in a dire state of recession, and people can’t afford anything that keeps stoking inflation.

https://www.telegraph.co.uk/business/2024/03/14/ftse-100-markets-latest-news-john-lewis-annual-results/

https://www.cnbc.com/amp/2024/03/14/this-week-provided-a-reminder-that-inflation-isnt-going-away-anytime-soon.html

https://inews.co.uk/opinion/britain-unstable-housing-market-more-shaky-than-ever-2954054#:~:text=Banks%20are%20known%20for%20being,people%20being%20made%20redundant%20is

Doesn’t look very promising for rate cuts does it?

This article is mainly talking about swap rates which appear volatile at the moment. It makes no comment on the BoE base rate cuts which are still expected to begin around June or August and after base rate falls, mortgage rates will eventually follow.

I know I'm being pedantic here, but you cannot say mortgage rates WILL fall if the BoE reduces the base rate. Obviously SVR's and discount rates will, but fixed rates may not. Here's Barclays to confirm this:

"The base rate influences the interest rates that many lenders charge for mortgages, loans and other types of credit they offer people. For example, our rates often rise and fall in line with the base rate, but this isn’t guaranteed. "

https://www.barclays.co.uk/mortgages/base-rate-information/#:~:text=The%20base%20rate%20influences%20the,it%20decides%20the%20base%20rate.

Tbh I see the “this isn’t guaranteed” line like their get out clause as they want to take zero risk. A bit like “this may contain a trace of peanuts” on milk chocolate bars that never do and I would know. I have a peanut allergy but still eat milk chocolate because I know they don’t really mean it.

Still, I take your point. I am a tiny bit of a risk taker.

What are you going on about?

Usually people would blame Truss for the mini budget which is why interest rates went up which is equally misguided, but you’re blaming Ukraine. Is Covid in the room too?

They were all just catalysts further accelerating what was already happening. The Truss mini budget wasn’t responsible for rates rising across the globe!

This is the reason (below) you are seeing the inflation and subsequent interest rate rises.

So much so I predicted what that there would be inflation when the BoE was saying their wouldn’t and that it wouldn’t be transitory on these very forums years back (you can search my posts) I even said what the interest rates would have to rise to during the first wave of inflation and at what point they’d stop.

The problem you have, is that you keep getting these ‘predictions’ from mainstream media that are selling a certain narrative for clicks.

The only time I link to articles is data that is happening/or has happened so you can more easily understand.

Look I can make another prediction that won’t be in the papers yet. The 10 year yield is going back up.

My prediction is that there will be no interest rate cuts whilst US treasury yields are reversing once again and rising. And the BoE just follows the Fed nothing more nothing less so same there.

But no doubt you’ll be posting a link to a newspaper article in a few weeks time that says that rates can’t be cut in 2024 now as war in the Middle East is causing inflation to prove to be sticky or something.

https://x.com/barchart/status/1769197018923307409?s=46

Seems pointless debating with someone so obsessed with what the Fed is doing and so suspicious of mainstream thinking that you ignore pretty much every source of information in the UK. As every UK economist , analyst & media outlet is pretty much saying the same thing now re the base rate falling in 2024.

Your prediction though is that there will be no interest rate cuts this year and I suppose Crashy agrees with that as he is another one obsessed with the Fed & distrustful of all UK experts or “experts” as he says.

Not going to repeat the same arguments over & over again that have already been debated with Crashy. Time will tell if you’re correct in your prediction about no interest cuts this year & I’ll leave it at that.

Bank of England to cut interest rates in June, economists forecast

The Bank of England is set to start cutting interest rates in June, according to a City A.M. poll of top economists, as inflation nears its target, the labour market cools and the UK takes its first steps out of recession. The majority (61 per cent) of the 23 economists surveyed thought the Bank would start cutting rates in June, narrowing their bets since last month's survey.

Just nine per cent believed rate cuts would begin in May, compared with 43 per cent last month, while around a quarter (26 per cent) chose August.

Just under half of the economists (48%) expected the bank would cut rates three times in 2024, with some placing more optimistic bets for four (30%) and five cuts (nine%).

Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, told City A.M.: “While the expectation is that interest rates will remain on hold this month, with the economy struggling and inflation slowing, the case for loosening policy by the summer is growing.”

https://www.cityam.com/bank-of-england-to-cut-interest-rates-in-june-economists-forecast/

The first and subsequent rate cuts continue to be pushed back as the US economy keeps surprising with its resilience to slowdown; there’s even some growth in the UK 😮. This isn’t a backdrop for rate cuts and city economists can be as hopeful as they want, but honestly they can’t forecast more than 3 months ahead. I think the BOE will be under pressure to get rates below 5% before the election from certain parties, but I’m not sure it will last into next year.

I'm on record as not knowing whether the next change is likely to be up or down.

But it is pretty much irrelevant. It's the overall trajectory of rates that matter - not individual quarter point movements.

Well, economies seem to be coping pretty well with current rates.( I thought it might all collapse if we reached 4% quickly). House prices are recovering, we are told, stock markets are reaching record highs. I’d put my money on higher rates over the next few years, rather than lower as a trend.

The problem with economists is it is not a science. It's opinion based
Get 10 or 23 in a room in this case and they all have a slightly different opinion, sometimes opposing opinions. Which one do you believe? Hard to know.
But the ones who are wrong will still give another new opinion next time they are asked, eventually they will be right.

Lighscribe presents articles with factual information, like graphs and real figures.

Twiglets presents media articles usually seemingly written and regurgitated by someone with an agenda trying to sway public opinion with wishy washy opinion rather than fact.

That's how I see it

I think that’s being hard on Twiglet tbh. This is a discussion on rates and we all have differing views. Its her thread and I find it useful to pick up the latest snippets even if we don’t agree always.

Thank you 😀

That’s because the vested interests on here are so strong they see what they want to see and hear what they want to hear rather than look at facts and figures objectively.

Most Economists, fund managers etc, follow the trends for expected returns to shareholders (like jumping into AI stocks, Nvidia sending it to dizzy heights) they will present a bull market case in assets as it means more revenue for them.

Governments and talking heads like the BoE don’t want to ‘talk’ the economy down into a worse situation than it would otherwise be. They are in a perilous state with the debt to GDP ratio and how much of our debt is index (inflation) linked. One wrong move/word could cause chaos in the pension/treasury markets (see Liz Truss for that one not inflation and rates)

Thats why the government and BoE predictions has seemingly got it so wrong these last few years. Twiggy is falling for it once again.

Look at the wider macro picture, and China, India are buying up vast swathes of commodities. Oil is rising once again more than the Nasdaq index this year.

That all means a secondly inflationary wave and stagflation is on the way which means there will be no rate cuts.

Twiggy thinks the UK is in a bubble immune to the global economic forces of the world and that the BoE have the ultimate say on raising/lowering rates.

If we lowered rates whilst the US was raising we’d quickly end up in hyperinflation of the £. That’s why whatever the Fed does is key not the BoE.

https://www.marketwatch.com/amp/story/u-s-economy-faces-1970s-style-stagflation-as-inflation-sticks-around-2b09c31a

Agree that an individual quarter point movement isn't that significant especially as already priced into swap rates. It is the overall trajectory of rates that matters so it will be significant if we see a few downward rate moves.

With sticky inflation and treasury yields rising once again, the only scenario now where there could be rate cuts is a sharp major global recession, sending unemployment sky rocketing and assets crashing.

Then and only then the central banks could cut rates and print more QE, stimulus and more eventual inflation. Inflation is good for reducing central bank balance sheets and their debt inflating away but only on a backdrop of strong economic backdrop, reindustrialistion and infrastructure spending for the economy to grow through it. War escalation is a perfect excuse for that.

Remember they printed 1/5 of the US currency in 2020, that’s a lot of inflation to get through.

https://businessnow.mt/cash-crazy-almost-a-fifth-of-all-us-dollars-were-created-in-2020-alone/

'With sticky inflation and treasury yields rising once again, the only scenario now where there could be rate cuts is a sharp major global recession, sending unemployment sky rocketing and assets crashing.;

I would say that this is a pretty likely scenario. In addition, I think that some small rate cuts from June/July onwards are very likely anyway, in part due to political pressure as both the US and the UK (and several other countries) have elections this year. Despite some posters finding the talk about The Fed dull, it is essential to think about what they will be doing as the UK is forced to be led by them and most certainly cannot operate in isolation. Frankly, the UK economy is in a rather precarious position and is a net importer, with few natural resources so can't take risks.

Overall, I can see some small rate cuts, with the possibility remaining of significant ones and QE on steroids if/when things really crash (that will be no good for anyone, especially not the housing market). Longer term, I can see stagflation as a likely scenario; I think we will get more inflation at some point, for the various reasons stated and also because of QE being introduced again when things 'go wrong'.

The chances of nice, orderly rate cuts, nice orderly growth and 2% inflation as per target with nice asset prices raises, I would put at zero.