Looks increasingly likely they’ll go up later this year or early next. From reading various bits and pieces over the weekend, the likely impacts will be mainly negative. Anyone who understands economics got a view on this?

Carney looks in an increasingly difficult place – can’t afford not to increase rates as a housing market bust could lead to a bigger bust, but an increase in rates will wreck many different parts of the economy directly…Or is this overly pessimistic?

A rise will lead to:

1. Mortgages more expensive – will stop growth of house prices/lead to increased repossessions, a drop in consumer confidence and potentially lead to a house price crash and consumer demand falls back again
2. Credit card and other personal debt harder to pay back – more personal debt and lower consumer spending (which current recovery is based on)
3. Lower levels of business investment – especially small businesses as loans become more expensive – therefore lower rate of GDP growth
4. Drives up the strength of Sterling: makes UK housing more expensive to foreign buyers- and a drop in London house prices, makes exports more expensive (bad for UK firms), imports cheaper and puts our current account even more into deficit (which usually leads to a crash)
5. All the government bonds the BoE is currently holding as part of QE will become worth less (not sure what the implication of that is tbh)

Oh, and the FT said that some mortgage lenders are already increasing their rates on 2-Year Fixed (Skipton was one). Why would they do that without a base rate rise?

Unless you are a saver.

Its an interesting one this. Because the housing market is going bonkers in London in the South East, but outside that, in large parts of the country, property is worth nowhere near what it was at the pre-crash peak. So there are massive amounts of people are in negative equity. Thus the housing market is still stagnating. There simply is no ‘recovery’ outside the south east.

So, as always, policy will be dictated by what is good for the South East, by a government that couldn’t give a toss about the rest of the country. And a housing bubble inflated in London, by a bunch of short-sighted idiots to ensure a brief electoral advantage in their core constituencies will once again real havoc on the actual, real economy.

Oh, and the FT said that some mortgage lenders are already increasing their rates on 2-Year Fixed (Skipton was one). Why would they do that without a base rate rise?

because it is their risk ?

I don’t think they will go up this year. I think we still have 12 months at the current level, certainly not before the general election.

It’ll be interesting to see the state of the housing market in a few months time, when the new mortgage affordability rules have had time to bite, especially in the SE where the differential between house prices and wages is largest.
I’m wondering how much house price rises have been driven by propel,feeling they need to move before the amount,of money they can berry gets severly pruned…

Any rate rise will likely be modest and mortgage rates may not move much. Credit card and personal loan rates are so high vs bank rates they may not move at all.

I believe Carney is just trying to talk the housing market froth down a bit, I think rates will stay low for a while as the real economy is quite weak. A rise in rates would hit consumer confidence (ie how rich people feel) and lead to less spending which would be quite serious for the economy. There is talk of a rate cut in euro-land.

the BoE have other tools to control lending that can be used before a rise in interest rates – for example changing loan to value ratios, income to loan multiples, increasing the amount of reserves banks are required to hold and thus reducing the amount of money available to lending.

With inflation falling and wage growth pretty well controlled there’s no urgent need for an interest rate rise just to control increasing house prices – the “new” tools would do this as effectively without impacting on lending to businesses which will sustain the significant improvement in growth seen over the last year.

It’s worth noting that only one of the leading forecasters predicted a run of 5 years without an increase rate hike – even 18 months ago the majority were predicting significant hikes in 2014 and so far they’ve been wrong on that too.

Mark Carney is a polital appointee of George Osbourne. Theres no way on earth he”ll raise interest rates before the next election. They will however have to raise them about 0.2 milliseconds after the next election, no matter who gets in.

Theres no way on earth he”ll raise interest rates before the next election

Ahh well you see a lot of core Tory voters are people who have either retired or paid off their mortgage and are looking for better returns on their savings.

help to buy, 600k upper limit, the policy was either

a) a sweetner for the kind of people that can afford over half a mill on a house, you still need to have a 15?% deposit to get it so thats a lot of money

b) a desperate attempt to stop having to sit opposite this every week
and get the housing market to lead the economy again and to hell with the consequences….

or a C bit of both

V little for the moment. BOE made it clear that there is plenty of spare capacity still. So no rush to raise rates and when they do they will remain below pre-crisis averages. So artificially low rates and a mispricing if risk for some time yet – sadly.

help to buy, 600k upper limit, the policy was either

a) a sweetner for the kind of people that can afford over half a mill on a house, you still need to have a 15?% deposit to get it so thats a lot of money

Despite the rhetoric from Mssrs Balls and Co, the Help to Buy scheme has done very little to push prices up or help middle class families buy £600K homes.

The boring truth (that Ed and Ed know perfectly well unless they are even more badly informed than usual) is that the majority of people helped so far are on limited incomes.

The AVERAGE loan underwritten fell to £147,330 in April this year from a high of £158K in December last year – in the north west the size of the average mortgage is even lower at £121,303. It’s worth point out that the volumes are also quite low – with a total well short of 20,000 loans underwritten to date.