UK interest rates rise to the highest since 2009
- Thread starter ks.234
- Start date
The only people that I know who own or are buying more than one property, are renting any that they do not live in. Because? Property price inflation is attractive, and interest rates are low. I would wager that far more people own more than one property for these reasons than any other, UK-wide. Property prices in quaint villages may have soared due to holiday homes and lets, but that is insignificant in the overall scheme of things.
Population growth is swamped by the effect that far more people live alone. Because? They can afford to.
Seeker_UK
Feelin' nearly faded as my jeans
As well as you-know-what.
kensalriser
pfm Member
That was a serious question which deserves more thought than a quick off the cuff response.
Low incomes aren't a result of inflation.
So again, what's so bad about inflation?
davidsrsb
pfm Member
Fixed incomes, all those pension annuities and pension pots that fail to keep up with inflation
messengerman
pfm Member
The effect you have in mind (bigger mortgage repayments eating up money so that it now cannot be spent on other stuff) is actually ignored in monetarist thinking and not the reason they raise interest rates to limit inflation.
For monetarists it's all about new borrowing. New money is created when people borrow and cancelled again when they repay. This bit is actually fact, money doesn't forever go in circles.
The monetarist theory bit posits that if new borrowing grows faster than debt is repaid the economy will expand because there's more money around (or inflation will if the economy can't). If repayments exceed new borrowing the reverse will happen : and the economy will be reluctant to shrink (they hope) so prices will fall. It follows all you need to do is tweak the price of new borrowing to keep everything in good order.
It dovetails neatly with so called "supply side" economics that posits the limits to growth (without inflation) is set by the rate companies can expand production. So remove all "constraints" to that (regulation, trade barriers, unions and so forth) and we might have fast inflation free growth.
Obviously this was always ridiculously simplistic, naive and at times even completely wrong even before globalisation. And needless to say none of it works even in simplistic theory with housing or finite raw materials which by nature and by human design are or can be supply constrained.
mandryka
pfm Member
Mortgages aren’t the only type of loan. Anyone using credit will find themselves squeezed by an interest rate hike, with resulting reduction in demand, which should effect prices by encouraging suppliers to reduce their margins. There’s a lot of consumer credit in the UK post covid.
ks.234
Half way to Infinity
Sorry, but on the cost of housing it is not the case that low interest rates have put up the cost of housing. House prices have risen in times of high interest rates more than they have in times of low interest rates. The less well off have been disproportionately hurt in the housing market because the better off have inflated house prices by buying multiple houses.
https://flic.kr/p/2niBxnD
In addition, those less well off will be hit by rent rises and when fixed term deals end, mortgage repayments.
Not sure what you mean as asset values as distinct from house prices, but most financial assets will obviously increase in value with interest rates.
The bottom line is that interest rates are regressive in that they tend to benefit the lender, who are better off, at the expense of borrowers, who tend to less well off.
I’m still left wondering how increased interest rates will help the less well off.
ks.234
Half way to Infinity
Our current inflation is caused by cost push, not demand pull, so to apply a demand solution to a cost problem shows a lack of understanding of the problem and can only produce, at best, an ineffective solution
laughingboy
pfm Member
Yes, I think your first sentence is about right - low interest rates can enable house price inflation, but demand can outstrip supply for many other reasons.
In the case of UK, house price inflation began to outstrip the rate of wage inflation between 1996 and 1998 (see graph in this New Statesman article) and has continued to do so, except for a slight correction in 2008. The Interest rate in June 1998 was 7.5% and it didn't fall below 5% until August 2001. Low interest rates don't seem to have caused the UK house price inflation in that period.
ks.234
Half way to Infinity
There is no correlation. House price have risen faster at time of higher interest rates and slower during ZIRP
ks.234
Half way to Infinity
Evidence?They were nonsense, the correlation is screamingly obvious
messengerman
pfm Member
It won't. It will squeeze their wages, compound their pay day loans, push up their rents (or their huge non fixed FTB mortgages) and make their housing situation even more unstable as flighty/highly leveraged landlords either up and sell or seek better off tenants to exploit.
Brian
Eating fat, staying slim
Unable to post this in the other thread apparently.
One of the many causes of house price inflation but a major one imo is simply a lack of houses. We need to start correcting the situation by building more homes, however, a comprehensive and thought through policy is needed rather than people banging on about their pet agenda of the moment.
One of the many causes of house price inflation but a major one imo is simply a lack of houses. We need to start correcting the situation by building more homes, however, a comprehensive and thought through policy is needed rather than people banging on about their pet agenda of the moment.
sean99
pfm Member
But my point remains that ZIRP has ENABLED high house prices.
ks.234
Half way to Infinity
Apart from 2008, it shows that house prices have risen during times of high interest rates and low interest rates.
Darth Vader
From the Dark Side
Apparently there are some 600,000 vacant homes in England alone. Wouldn't it be sensible to get those occupied?
Of course many people are picky.................
Cheers,
DV
Brian
Eating fat, staying slim
During high rates in the 90's my house dropped in value by ~30%. Couldn't get anyone through the door to even look at it, I guess you'll ignore that, though. Doesn't fit the narrative. I'll give you figures if you don't believe me.
Joe Hutch
Mate of the bloke
Depends. Are they perhaps vacant because their owners have priced them too highly? Because they are unfit for human habitation? Because they are in a high crime/low employment area? It also depends on whether those without homes possess the wherewithal for a deposit and mortgage payments on these properties.
It's like saying 'Oh look, there's x number of vacancies, so no-one need be unemployed' without factoring in the level of skill required, the location of the vacancies and availability of accommodation in the area, and whether the vacancy would provide sufficient income to support a family.