Abandon All Fear

What nobody else seems to be saying…

[Interest Rates] Home Spun Prophecies

Posted by Lex Fear on May 11, 2007

4 Years Ago

15 July 2003 – The Great Equity Raid

Egg warned that, as consumers take on mounting levels of debt against the rising value of their homes, personal indebtedness could become a serious threat to future stability, especially if interest rates started to rise again…

With the majority of homes now valued considerably higher than their purchase price, homeowners are feeling financially comfortable and ignoring the need to save elsewhere…

This is a dangerous mindset to fall into. A drop in house prices could leave many homeowners financially exposed.”


23rd July 2003 – Prices Up 2.4%

Rightmove’s commercial director Miles Shipside said: “The indicators in the market are positive in that supply is no longer outstripping demand but activity is far below what we were seeing last year. Stock levels remain very high and with low interest rates and lots of good mortgage deals it’s still a good time to buy for first time and subsequent buyers.”

26th July 2003 – Why The Tide Has Turned For Fixed Rate Loan Deals

“Last week, the Bank of England’s new governor Mervyn King hinted that this month’s cut in interest rates to 3.5% may not be the last in the current cycle. The millions of people with variable rate mortgages will be hoping Mr King’s hint bears fruit.”

1 Year Ago

5th October 2006 – Rates Held At 4.75%

“Inflation is also expected to rise higher in the coming months, as the high utility bills and university top-up fees feed through into the Consumer Price Index…

…more recent developments support the view that 5pc is likely to mark the peak of this interest rate cycle.

9th November 2006 – Interest Rates Rise To 5%

“Rising interest rates will mean further problems for homeowners and borrowers struggling to pay off mortgage, loans and credit cards. A record 27,644 people went insolvent during the summer.

This Year

21st January 2007 – Inflation: The Secret Cost Of Living

“The practical question now is whether the 5.25 per cent rate is enough to curb inflation. The general perception in the financial markets is that there will be another increase in the spring. People should be prepared for 5.5 per cent, maybe more.

Will that lead to a housing crash? Not necessarily. It could happen, but perhaps more probably prices could plateau for several years, maybe falling a bit but not collapsing. Gradually, incomes would catch up and houses would become more affordable again.

20th April 2007 – Britains Debt Pile Unlikely To Topple

“LONDON, April 20 (Reuters) – British interest rates would need to rise to 8.5 percent for the cost of debt servicing as a proportion of national income to hit levels seen in 1990, when the economy tipped into recession, new research shows.”

25th April 2007 – ‘Determined’ King Predicts Sharp Fall In Inflation

“The comments, made during Parliament’s enquiry into the first 10 years of the MPC, reinforced expectations that interest rates will be lifted by a quarter-point to 5.5 per cent in May. But there were no clues as to whether rates will need to rise further, to 5.75 or even 6 per cent as some commentators have suggested.”

27th April 2007 – Rates Rise Could Spark Housing Crash Says Nationwide

“In our view, the talk of rates climbing to 6 per cent and beyond is overblown and if implemented in the current climate could be damaging to housing market stability,” said Fionnuala Earley, Nationwide’s chief economist.”

10th May 2007 – Rise In Interest Rates ‘Certain’

According to the results of a survey by Reuters, agreement that interest rates will today (May 10th) increase by 0.25 per cent to 5.5 per cent was greeted with unanimity…However, among the 61 polled economists, ten per cent voiced their expectation that interest rates may rise to 5.75 per cent

However, a more plausible scenario is that a hawkish inflation report could lead to back-to-back rate hikes in May and June.”

10th May 2007 – Rising Inflation Could See Interest Rates Hit 7.5%

“According to some economists the interest rate in the UK may have to hit 7.5% in order to try and bring inflation under control.”

11th May 2007 – Rates Rise To Six Year High Of 5.5%

“The Bank of England brought mortgage misery to millions of homeowners yesterday by raising interest rates to 5.5 per cent – the highest for six years.”

11th May 2007 – Rates May Not Yet Have Hit Peak, Say Economists

Borrowers should brace themselves for the possibility of another interest rate rise this year, as economists are warning that this week’s increase to base rates is unlikely to herald the peak of the cycle…Base rates were increased by a quarter of a point to 5.5 per cent on Thursday – the fourth such rise in nine months. Homeowners on variable rate mortgages have therefore faced a full percentage point hike in their interest rate since last summer…

The interest rate rises are intended to put the breaks on the runaway house price growth seen over the past year… Last month inflation hit its highest level for 10 years…

Economists said the Bank offered few solid clues as to future interest rate movements, but a number expected another quarter point rise some point this year. Mortgage brokers said fixed mortgage rates are currently being priced on the expectation that base rates will hit at least 5.75 per cent.

Alex Fear says

4th March 2007 – You Can’t Halt The Tide

“Is this the beginning of the downturn in the cycle? 1st rule of investing: Buy low, sell high.”

9th April 2007 – The First Myth: House Prices Always Rise

“For earnings to catch up with prices, interest rates must rise, and when this happens, it will all come tumbling down as people rush to sell, being unable to afford their mortgages.”

Interest Rates Chart 1985 – Present

Graph Soure: HPC

Future..?

3.5% (1.5% Above Gordons’ target for inflation) – Lowest since July 2003
5.5% (3.5% Above Gordons’ target for inflation) – Current Base Rate 2007
6.0% (0.5% increase) – “Overblown” – Fionnuala Earley, Nationwide
7.5% (2% increase) – “Bring inflation under control” – Prof. Tim Congdon, Economist
8.5% (3% increase) – “1990 levels recession” – Alliance & Leicester

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