Interest rates – could they be post-code specific?

Just a thought…

Boom areas could have higher rates to quell demand, flat areas lower rates to boost demand?

Couldn’t be too hard to implement in this techy age – I’m sure there’s a good reason why not though.

As long as folk don’t mind changing their Up’t North Dinari/shekels into Sunny South Shillings when they visit, it sounds like a plan.

The trouble is you can’t really make the Bank of England base rate postcode-specific because that’s the really just the rate at which the BoE lends money to banks.

So really you need the mortgage rates that the lenders set to be postcode-specific. Which might be good for the economy, but making less profit on some customers doesn’t really benefit the lenders so they don’t have any incentive to do it.

Well once Scotland leave, we can split up England into sensible size provinces and localise some fiscal policies.

How did it work back in the days when you went to your bank manager for a mortgage and they personally decided, not a centralised computer? Did they have any local discretion on rates?

Probably need individual rates for people as much as postcodes.

sorry, very silly idea.

A better solution would be greater regional differential council taxes linked to household income.

You could possibly implement a notional higher interest rate with an interest payment tax driven locally, but Im sure we dont all want new taxes do we?

sorry, very silly idea

Apart from the practical difficulties, why? (Genuine Q)

It would be better to just increase stamp duty.

everyone here is conflating base rates with mortgage rates. The base rate comes from the central bank, and it is the rate at which banks can borrow overnight from the central bank. There is no regional restriction to the capital. The banks borrow pools of capital from time to time. They dont go and get money for Mr Smith, Bradford, from the BoE and pass it on.

everyone here is conflating base rates with mortgage rates

*hand up* Oooh ooh.. except me sir… me… me…

Apart from the practical difficulties, why?

To slow down the housing market in certain areas and help it in others perhaps ?

Interesting idea, I see the BOE’s problem so alternatively why not just reduce the ability to borrow as multiples of your income in certain areas -London and the south east it is 2x income and rest of the country it is 3x.

Still think it should be capped at 3x income to make it affordable – it would kill the housing market for a generation, but is that a bad thing. Personally i think it should have been done 5 years ago at the bottom of the slump and then we would have money to spend on other things, like new bikes !

Interest rates affect a lot more than just house prices…

Yeah I think he really means Mortgage Interest Rates not interest rates in general.

It would be better to just increase stamp duty

That’s just a one of cost though, which would probably get absorbed into the asking price, and you’d have to raise it a lot to make a decent dent in the market.

By increasing the interest rate (somehow) or having an ongoing tax of some kind, you affect the whole affordability/cost of ownership of the property. Affordability (and especially percieved affordability given the current low rates) is the problem driving house prices up.

silly idea + 1

Better to control using existing tax methods like stamp duty and council taxes.

I also think a multiple owner tax should be introduced. Own more than one home, pay more tax. Try and curb those buy to let landlords pushing up the prices of affordable homes. As soon as people can get their mitts on their retirement pots the market for rentable properties is going to go mental….

why not just reduce the ability to borrow as multiples of your income in certain areas -London and the south east it is 2x income and rest of the country it is 3x.

Because, if the press are to be believed, large stocks of housing in London are already being bought up by foreign investors – so if you prevent the locals from buying them then this will only get worse.

Still think it should be capped at 3x income to make it affordable

Totally agree, used to be like that and house prices only went crazy when people borrowed far more than they could sensibly repay.

I say set rates on the Greggs Scale.

More Sausage rolls sold = less rate hike & More Pies sold = higher rate hike.

Or give the game to a 4 year old who needs a pee, “I need pee pee Daddy NOW!” = higher rate, “I done pee pee in my pants” = lower rate.

Don’t thank me.

Because, if the press are to be believed, large stocks of housing in London are already being bought up by foreign investors – so if you prevent the locals from buying them then this will only get worse.

But they are only buying up the housing stock because they expect to make a killing due to price rises, with the purchasing market suppressed, then those “foreigners” would take the hit.

Still think it should be capped at 3x income to make it affordable – it would kill the housing market for a generation, but is that a bad thing

Not even sure it would do that, would entirely price out low earners, but plenty of people would still be fine, reckon that would cause as many problems as it solves.

If I remember rightly when I entered the housing market in 1981 it was 2.5x

they are only buying up the housing stock because they expect to make a killing due to price rises,

I don’t think it’s that simple it is also because London property is considered a ‘safe’ investment and the location is desirable.

But they are only buying up the housing stock because they expect to make a killing due to price rises, with the purchasing market suppressed, then those “foreigners” would take the hit.

Well except they won’t – because in the long term the house price will rise, especially in places with limited housing and high demand like London.

It’s already beyond ridiculous what people will pay for housing there:

Studio flat with bedroom, kitchen and shower in one room for £737pcm, rented in half a day (The Independent, 3 June 2014)

I know, lets tax the shit out of the greedy Londoner’s having forgotten that the cost of living is already the highest in the UK.

Yes its a choice where we live, but don’t assume that just becuase our houses are valued/cost more, our disposable income is any less average or squeezed relatively speaking than anywhere else in the country.

As perhaps suggested, the additional income from the % of mortgages in London that might be affected probably wouldn’t help the BoE/Economy anyway.

Not even sure it would do that, would entirely price out low earners

It always did, not everyone owned houses, that’s what council/private rented property was for

Have they made all the taxes, local and central, levied on property to be applied regardless of whether buyer is an individual or a company in the Cayman Islands?

Seems to me that central/west london is pretty much a money-laundering tax aviodance facility that needs to be dealt with as it’s skewing the rest of the market(s)

Would these interest rates apply to savings as well?

You could amke a bit of money like that. Borrow in a low rate post code and save the loan in a high rate post code.

Would these interest rates apply to savings as well? Could I put all my money into a building society up north?

Nah, you want to put the savings in the same places as the expensive mortgage rate.

Or invest in the cheap property available in the North thus pushing up prices there.

Or invest in the cheap property available in the North thus pushing up prices there.

Oi, no shitting in our parmo.

We’re all assuming here that prices are going to continue going up…

I posted this chart a few weeks ago. There’s an interesting and repeated pattern don’t you think? Following the overall trend, its suggests the bottom will be around 2018.

London has already got the point that people simply can’t afford to pay the mortgage needed to pay the prices being asked – and now the amount they can borrow is being limited, sellers won’t be able to sell unless they drop their prices. It’s less a case of unwilling to pay that much but simply unable.

I’m only 41 and this has happened 3 times in my lifetime already according the graph

@brooess – firstly your chart shows that over the longer term prices have always gone up. You comment about London is rather a sweeping generalisation and as such isn’t correct. There are plenty who can afford to buy and they continue to do so. London prices have jumped up sharply but they are still below the levels of 2008 in real terms as your own chart clearly shows. London is where the work is.

Or invest in the cheap property available in the North thus pushing up prices there.

The property is only cheap if you believe the employment prospects are good. The South-East is much less dependent upon state sector jobs, with cuts in government spending the economies of the North etc have been much more adversely affected. That’s why property is “cheap”.

@muffin_man – no not a very good idea. In the old days a bank manager could control local lending not by rate but by granting or refusing a loan application. There is also a danger if that you make rates post-code dependent sooner or later someone will accuse you of being racist as a post code with a specific ethnic minority will have a high or low rate.

The red line on that Nationwide graph isn’t based on maths. A long term moving average would be rising series of waves. It would also show that prices have fallen through the long term moving average and a bigger correction than we have seen has historically followed.

@Edukator – we are due for a long period of low interest rates, I don’t see what is going to trigger a fall. Any rate rise is going to be relatively modest.

Well I suppose that a computer somewhere can tell us on a regional basis which areas default on their payments. Now that might be a fairer way of charging more. Sort of like a bad credit rating for counties?

@Edukator – we are due for a long period of low interest rates, I don’t see what is going to trigger a fall. Any rate rise is going to be relatively modest.

Ahem – from the other thread about our obsession with house prices

I remember when my then GF and I had signed out lives away on an Endowment mortgage of all of £42k ( 2 bed cottage) when the interest rate went from 4 to 17% over the course of just 48 hours

No sleep for a bit after that

No-one can make assertions like ‘we are due for a long period of low interest rates’ unless you’ve overcome the challenge of time travel! Especially when conditions have no historical precedent.

What seems more likely is that BoE/UK government will do everything they can to avoid doing it because the country is so indebted there’ll be a collapse in confidence if they too it too quickly and too soon, and we’d be back in another bust.

On the other hand, to ensure growth doesn’t get out of control (and lead to another bust), they may have to raise interest rates.

I’m pretty glad I’m not involved in trying to get that decision right tbh.