An FT email says this morning I that:
Janet Yellen, the Fed chair, has warned that the US risks a “nasty surprise” if it waits too long to continue raising interest rates.
The US and UK economies are not the same, of course, but interest rate movements are infectious. The U.K. has a weak currency, buoyant financial markets, house price inflation and debt driven growth. All are signs the we too will have rate rises.
In theory there is nothing surprising about rate rises, but we have not had them for more than eight years - a third of the life of an average mortgage. Large numbers of mortgage holders do not now know what they might mean for them. That creates real risk: their reactions, economically and politically, are unknown.
All sorts of things might trigger disillusionment with a government. I would put this one high on the list this year. A lot of people are going to experience a shock they have never known before.
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Well, I have my fixed rate mortgage for the remaining 6 years I have to pay for this house of ours and I’m glad I took that option as I too am not sure how long low rates will last (however, low interest rates might very well be the new ‘soma’ for the masses).
In my view variable rate mortgages should be banned to be replaced by longer term low lower interest mortgages as standard. Choice!? Pa!!
I have seen the problems those variable rate and interest only products have caused – usually when a family turns up homeless as they can no longer afford the mortgage.
I can recall canvassing in Barnet in my Ward in 1990, when I stood for the Council the first time.
The Ward was then held by the Tories, and had been since whenever, with the Tory Council Leader as one of the Councillors, but what I heard on the doorstep was considerable pain and criticism of the Thatcher government over the then ruinously high mortgage interest rates, which had hit something like 15% by early 1990, and certainly 10%+.
I have no doubt that this contributed as much as the Poll Tax fiasco to Mrs Thatcher’s downfall that year, and was probably contributory to my winning a seat in the Ward in 1994. Traditional Tory voters had simply lost trust in their Party, and the same could happen again in the current very strange circumstances of a years’ long period of exceptionally low rates. Putting them up WILL be a shock to many who have cone to think that low rates are “the natural way of things”.
Considering the fact that both businesses and individuals have indulged in cheap credit and rates to invest or buy houses etc. as well as a recent credit card debt spending binge by the public. It would be an absolute disaster for many if, with rising inflation, they decided to increase interest rates. You’re talking major recession right? When do you foresee them doing such a move Richard?
This year, and maybe sooner (post 31/3 though) than later
Sorry for going off-topic here Richard but I saw this in The Guardian (Davos report)and found that the Polish Deputy PM, Mateusz Morawiecki had found an excellent way of expressing this problem (and thought that I should share it):
‘Morawiecki says that the three countries who make the most foreign direct investment into the European Union are the United States, then Switzerland, then Bermuda.
And the list of FDI payments to countries from the EU is exactly the same (ie,the most goes to the US, then Switzerland then Bermuda).’
“If this is not huge, global tax evasion, I don’t know what is.”
https://www.theguardian.com/business/live/2017/jan/19/davos-2017-theresa-may-addresses-the-world-economic-forum-business-live#comment-91505405
Avoidance, please
They just well-educated criminals in business suits laundering their cash, move along now nothing to see here.
When I got my mortgage it was 5 points over base rate, when the base rate was 15%. But that was also in a time of stable house prices where a 15% deposit was 6 month’s salary.
Interest rates, like money, is just a tool, and like any tool it is ethically neutral. It is the actions and person who uses the tool that should be examined. I worry that the tool wielders have allowed and encouraged today’s generation to borrow themselves into penury. My greatest worry is those people who were allowed interest-only mortgages, borrowing without ever paying back any of the loan, then finding 25 years later the loan is still there waiting to be paid off.
Tools are not ethically neutral
Apartheid was a tool
Stop talking nonsense
Tools *are* ethically neutral. You are mistaking the outcome for the tool. Aparthied was not a tool, it was the outcome of using the tools of population residency and movement control. Aparthied was the slit throat, not the knife. The *people* wielding the knife are the ones whose actions are to be judged, not the knife. The UK planning system is a knife of population residency control, the people wielding that knife chose not to use it to slit people’s throats.
This is a common fallacy, seeing the tool and desiring the use of the tool instead of seeing the action the tool can produce and desiring that result. “We want to use the tool of high import tariffs because we want to use the tool of high import tariffs”. “We want to use the tool of Green Taxes because we want to use the tool of Green Taxes”.
Respectfully that is utter nonsense
Of course a tool has to be used, but to presume that the location and use of the tool can be assessed independently of the motive of the creator is absurd
There is no benign use for a gas chamber
The gas chamber is not ethically neutral.
You are wrong
Like Andrew I can remember the Tory ( chancellor Norman Lamont) ejection from the ERM and it’s consequent interest rates 7.5 – 15% that either made people homeless, or if not, in negative equity. What goes round might just come round again? I hope not.
There was a real estate downturn in the seventies, eighties and spectacularly above. I’m old I have seen it, who knows?
But asset prices have pretty much been on hold since.
These, now, are not normal times, and anything could happen. Kondriatev?
Will interest rates revert to the historic norm of 5% (give or take )? If so hold on to you hats, – very bumpy.
Quite right Richard, interest rates could be a game changer.
Thanks for the blog, it’s the heart of the new thinking.
P
Thank you