Interest rates going up soon...

[Red 4]

fblm said:

There are more savers than borrowers'.

Are there ?

Serious question, btw.

Most people I know owe more than they have in savings. (Not me though, I'm minted. Obviously).

[JagLover]

CoolHands said:

So because wages are going to increase (in the future) they’re getting in early to snatch it away? It’s good here, innit

Interest rates take up to 18 months to effect the economy, so yes you do need to look to the future.

Looking at the British economy post 2008 ultra low interest rates don't seem to produce prosperity either. Regardless of whether you are a saver or a borrower a move to a more "normal" level is to be celebrated.

[Red 4]

JagLover said:

Interest rates take up to 18 months to effect the economy, so yes you do need to look to the future.

Looking at the British economy post 2008 ultra low interest rates don't seem to produce prosperity either. Regardless of whether you are a saver or a borrower a move to a more "normal" level is to be celebrated.

Low rates have not resulted in prosperity for the majority.

Low interest rates and recession/ crashes don't historically go hand in hand. In fact it's usually the reverse scenario; high interest rates at times of recession.

I'm not sure how many people will be celebrating a rise in base rate though.

Contrary to fblm's post, it appears more people are now likely to be borrowers rather than savers.

https://www.bbc.com/news/business-43583670

[mike74]

CoolHands said:

So because wages are going to increase (in the future) they’re getting in early to snatch it away? It’s good here, innit

Nothing at all to worry about, unless you're a feckless, over leveraged debt junkie.

[alfaspecial]

Next Thursday, 2nd August 2018, the Bank of England Monetary Policy Committee are due to announce their interest rate decision and publish minutes. There have been some news reports that might indicate a degree of 'softening up' (of the news) before justification for a rise in the base rate. eg announcement indicating the public wage freeze will be lifted.

I believe now would be an appropriate time to consider the real losers under the ultra low interest rate / quantitative easing policies of the last decade. These losers include
1) Savers receiving negative interest rates resulting in falling demand and people generally losing the savings habit, creating long term problems
2) Savers being pushed into chasing yield ie purchasing risky assets and creating long term imbalances in the economy housing/BITCOIN
3) Businesses that have been forced into competing against zombie companies(1) - viable businesses subsidising market failures
4) Zombie companies being able to survive and prosper without innovation, resulting in declining productivity
5) Asset bubbles such as housing, particularly BTL, preventing younger people from purchasing their own property (2)
6) High house prices, as a result of ultra low interest rates, help to buy etc distort personal financial planning. Home ownership is a form of pension in that it implies current deferment of spending in favour of some future benefit.
7) The Global Financial Crisis was substantially a result of a poor regulatory regime - have we learned from this? No. Refer to the decline in car ownership where now most car sales are leases. The GFC of 2007-8 caused by credit excess is now being fought with credit excess...
8) Lose lending regimes have encouraged short term, high cost loans and a willingness/perceived necessity to live, day to day, relying on the oxymoron that is 'cheap credit'.
9) Undoubtedly the extended period of credit excess has impacted on some more than others (3)
10) The very banks that were market failures at the time of the GFC are now more powerful than ever. Profits have been privatised, losses socialised.


Financial repression is a government policy where interest rates are deliberately held below the rate of inflation - the benefit to the government is that the real cost of borrowed money becomes negative. The best known example was after the second world war- the UK's savers had bought war bonds to fund the fighting of the war - successive post war governments allowed inflation to rise in order to 'inflate away' savers loans to the state. Bit of a kick in the teeth for patriotic savers - but then perhaps it could be justified in that the loss for many citizens was greater than mere money?


And 10 years ago, with the introduction of artificially low interest rates and QE, the State sunk to a new low. Financial Repression was introduced to bail out the Government's and the BoE's 'friends' in the city. All those corrupt and broken banks.

You may wonder why the best rate of interest you get on your hard earned savings is 1/3 the rate of inflation. Or why your employer's pension fund is in in deficit. Or why 'savers' have responded to 'financial coercion' by being pushed into risk assets in order to 'preserve' the real value of their savings. So now you know.





(1) Zombie companies are business (and individuals) who would have 'gone to the wall' under natural interest rates but exist only because of cheap liquidity. The long term effect is that because they are being subsidised by 'savers' successful companies who are not being given room to prosper.
(2) The decline of home ownership is a worrying long term trend. When current renters 'retire' who will pay their rents? It is likely that the burden of providing homes for future generations of retirees will fall on future taxpayers. Whereas in the past, increasing home ownership was effectively reducing future State dependency. Home owners were motivated by being able to pass on their wealth to their children.
(3) https://www.bbc.co.uk/news/business-44926447

[anonymous-user]

Red 4 said:

fblm said:

There are more savers than borrowers'.

Are there ?

Serious question, btw.

Most people I know owe more than they have in savings. (Not me though, I'm minted. Obviously).

Yep. Only slightly over 1/3 of households have any mortgage debt at all which makes up the majority of consumer debt (1.3tr). Many of those near the end of their terms will have savings exceeding their debt (net savings). Even in the households with the other 200bn of consumer debt (credit cards, overdrafts, loans etc...) the vast majority have net savings (ranging from 70% to 90% from rich to poor deciles).

[egor110]

Anything to back that up ?

[Derek Chevalier]

mike74 said:

CoolHands said:

So because wages are going to increase (in the future) they’re getting in early to snatch it away? It’s good here, innit

Nothing at all to worry about, unless you're a feckless, over leveraged debt junkie.

There are very few of those in the UK

https://www.bloomberg.com/news/articles/2018-07-25...

[Red 4]

fblm said:

Red 4 said:

fblm said:

There are more savers than borrowers'.

Are there ?

Serious question, btw.

Most people I know owe more than they have in savings. (Not me though, I'm minted. Obviously).

Yep. Only slightly over 1/3 of households have any mortgage debt at all which makes up the majority of consumer debt (1.3tr). Many of those near the end of their terms will have savings exceeding their debt (net savings). Even in the households with the other 200bn of consumer debt (credit cards, overdrafts, loans etc...) the vast majority have net savings (ranging from 70% to 90% from rich to poor deciles).

Thanks for the reply but (there's always a but) ...

According to the Office for National Statistics savings levels are at their lowest since 1963.

And, since 2017, households are more likely to be borrowers rather than savers.

Any idea what the average household has stashed in a savings account ?

It's not all about mortgage debt - cost of living, inflation, stagnating wages, the value of the pound and, of course, the cost of borrowing all come into it.

I'm just waiting for the flood of PCP'd Audi and BMW that people can no longer afford to hit the market so that I can have my pick

[turbobloke]

DELETED: Comment made by a member who's account has been deleted.

With that factor in mind, a small rate rise now gives the independent committee an opportunity (more room) to reduce rates independently around Feb-April next year.

[Red 4]

DELETED: Comment made by a member who's account has been deleted.

Depends on your level of debt (sorry for stating the obvious).

A 0.25% interest rate rise on a 200k mortgage costs an extra 25 pounds per month.

That's not exactly earth shattering but if base rate ever returns to "normal" levels, say 3% (ish) then that would cause major problems for many.

Factor in other debts and it could well be catastrophic.

Interesting times ( but I don't think we'll see significant rises for a very long time. The Banks would not like it).

[anonymous-user]

Red 4 said:

Contrary to fblm's post, it appears more people are now likely to be borrowers rather than savers.

https://www.bbc.com/news/business-43583670

The headline is misleading. They are misinterpreting/misrepresenting a change in the rate of debt and savings accumulation; people might have been taking out more debt than saving last year but that doesn't mean the number of households in net debt exceeds the number with net savings. In a population of 10 if one person owes 100k and 9 have savings of 5k each on average we're in debt but 9 out of 10 are not.



https://www.ons.gov.uk/economy/nationalaccounts/uk...

[JagLover]

DELETED: Comment made by a member who's account has been deleted.

You need to keep a sense of perspective. Rates are likely to rise in quarter point hikes, each one spaced months apart.

After a number of years we might reach the level of 1.5% Bank of England base rates.

In america the federal reserve rate is currently 2% and may reach 3% over the next couple of years.

Due to the massive amounts of debt in the western world we are extremely unlikely to return to the interest rates seen in the 1980s and 1990s within a generation.

All that is likely to happen is that eventually we get to a point where savers can actually protect their money in real terms and it is slightly more expensive to borrow.

[Bigends]

JagLover said:

DELETED: Comment made by a member who''s account has been deleted.

You need to keep a sense of perspective. Rates are likely to rise in quarter point hikes, each one spaced months apart.

After a number of years we might reach the level of 1.5% Bank of England base rates.

In america the federal reserve rate is currently 2% and may reach 3% over the next couple of years.

Due to the massive amounts of debt in the western world we are extremely unlikely to return to the interest rates seen in the 1980s and 1990s within a generation.

All that is likely to happen is that eventually we get to a point where savers can actually protect their money in real terms and it is slightly more expensive to borrow.

I remember paying 14 - 15% back in the 80's with the dreaded letters arriving every month hiking the rate by 1/2% each month

[egor110]

But even so property was easier to buy.

A ordinary unskilled blue collar worker could of got a terraced 2 up 2 down , highly unlikely now .

[JagLover]

egor110 said:

But even so property was easier to buy.

A ordinary unskilled blue collar worker could of got a terraced 2 up 2 down , highly unlikely now .

My parents were able to buy a 3 bed terraced house in London for £5,000 or so back in the 70s.

8% on £5,000 is considerably less than 8% on £750K

[Jockman]

egor110 said:

But even so property was easier to buy.

A ordinary unskilled blue collar worker could of got a terraced 2 up 2 down , highly unlikely now .

There are large parts of the UK where this is still possible.

[egor110]

Jockman said:

egor110 said:

But even so property was easier to buy.

A ordinary unskilled blue collar worker could of got a terraced 2 up 2 down , highly unlikely now .

There are large parts of the UK where this is still possible.

Really ?

Not a stter that needs renovation but somewhere you can actually move into.

1994 I got my 1st home for 29k , I think the deposit was around 5k so totally affordable, now although property has risen in price wages haven't so I just don't see where your ordinary worker is going to get the deposit at the same time as renting/ living .

[Randy Winkman]

Bigends said:

I remember paying 14 - 15% back in the 80's with the dreaded letters arriving every month hiking the rate by 1/2% each month

DELETED: Comment made by a member who's account has been deleted.

If I recall correctly, mine was about that when I bought my first home in 1993. But 25 years later I regard myself as having been extremely lucky that I was able to buy back then.

[voyds9]

egor110 said:

Really ?

Not a stter that needs renovation but somewhere you can actually move into.

1994 I got my 1st home for 29k , I think the deposit was around 5k so totally affordable, now although property has risen in price wages haven't so I just don't see where your ordinary worker is going to get the deposit at the same time as renting/ living .

https://www.rightmove.co.uk/property-for-sale/property-50457444.html

£40,000 mid terrace, so waged earning £16000 or more should be able to afford it on 2.5x multiplier with no deposit.