Even lower base rates.

[jonny70]

Ozzie Osmond said:

So why are stock markets at or near an all-time high? Because of the income stream and solid business foundations. Open your eyes and you will see that I am right.

Property values will only fall significantly if and when the tenants can't pay their rent. As the bank muppets found out when they over lent to people who couldn't pay their mortgages.

Stock market is high because bond yields are really low,(a lot to do with quantitative easing).This is basic economics.

My point was lots of people jump on the bandwagon of increasing house prices/share prices when they are on the way up , as soon as they start falling all these speculators rush to sell. Its happend with every boom and bust in history from the South sea bubble to the Great wall street crash.

The reason property hasnt fallen much is because of artificially low interest rates and massive government injections into propping up the mortgage market. The amrket will eventually correct itself , it always has as history shows , you can only meddle with it for so long.

[jonny70]

Deva Link said:

jonny70 said:

You are wrong . Why when share prices fall people rush to sell them though the yields will increase as the share price falls (same as your house example above) uncertainity/fear and cashing out of an asset that is falling in value is what the average joe does as they see share price fall they get scared they will fall further and sell or that the price going up is over , this behaviour also applies to property.

Does it - the difference between shares and property is that people need somewhere to live and the more uncertain the economy the more likely that is that demand for rented property will continue to increase.

Im talking about those that bought for speculation because house price were increasing at 20% a year and the btl novices who are being held aloft by low i/r .Im not talking about joe who bought his 4 bedroom semi in 1991 for his family and its his home or professional investors who have been in the property market for along time.

[Art0ir]

Terminator X said:

Art0ir said:

Gradually increase them. The defaults will come either way unless we start another property bubble, is that what you're proposing?

I agree they need to gradually rise but not now. There is at least another govt term of pain and imho rates will stay low until then. People have to have job security and pay rises behind them before a rate increase can be considered otherwise we'll be right back where we started in 2008.

TX.

The problem with that is, we're borrowing from tomorrow to pay for yesterday. The longer it's kept up, the more violent the swing to market rates is and more soft the 2008 crash will look. Equity swaps and debt write offs will be the answer when that time comes, but it may not be enough.

[WeirdNeville]

Art0ir said:

He may be selfish in his motivations, but poor saving habits are why much of the current crisis had unfolded in the way it has. This is not good news for the economy in the mid to long term.

Why bother saving when you get no returns and your cash fund is eroded by inflation?
Don't get me wrong, I saved a bit into an ISA but like most people I didn't have a great deal of excess cash. With the way things have gone over the last 10 years and interest looking flat with inflation not yet under control I'd rather spend £5k now on a car (that's real money, not a loan) than save it for 5 years and have it be worth ~£4k for my effort in waiting and driving an older cheaper car.
Short of having enough for emergencies set aside, there is no incentive to save. I overpaid the mortgage by more than I saved in cash, and saw that as my "savings".

I've never subscribed to the "get it now" lifestyle, I've never had an outstanding credit card balance or got a personal loan, but for most people who balance their lifestyle with their earnings sensibly, there is no incentive to save cash in the UK. And if I'm not saving cash, then I'm not going to try riskier investments like shares either, as I don't have that money to lose.

That's the stark reality.

[Art0ir]

WeirdNeville said:

Art0ir said:

He may be selfish in his motivations, but poor saving habits are why much of the current crisis had unfolded in the way it has. This is not good news for the economy in the mid to long term.

Why bother saving when you get no returns and your cash fund is eroded by inflation?

I completely agree and that is the crux of it.

[turbobloke]

swerni said:

Art0ir said:

WeirdNeville said:

Art0ir said:

He may be selfish in his motivations, but poor saving habits are why much of the current crisis had unfolded in the way it has. This is not good news for the economy in the mid to long term.

Why bother saving when you get no returns and your cash fund is eroded by inflation?

I completely agree and that is the crux of it.

The point of saving, is to have a cushion if it all goes horribly wrong.

Liquidity matters

The other aim of remaining liquid via cash in savings accounts in a european context is to provide a cushion for the EU and IMF to sit on as they launch another desperate scheme to save the euro, a daft project which has gone horribly wrong...by raiding your savings.

[McWigglebum4th]

crankedup said:

I just want decent rate returns and a stop to subsidising people who cannot afford to service their mortgages at a sensible borrowing rate. Five years losing cash to this policy is long enough perhaps.

there goes another irony meter

http://www.pistonheads.com/gassing/topic.asp?h=0&a...

[turbobloke]

swerni said:

turbobloke said:

swerni said:

Art0ir said:

WeirdNeville said:

Art0ir said:

He may be selfish in his motivations, but poor saving habits are why much of the current crisis had unfolded in the way it has. This is not good news for the economy in the mid to long term.

Why bother saving when you get no returns and your cash fund is eroded by inflation?

I completely agree and that is the crux of it.

The point of saving, is to have a cushion if it all goes horribly wrong.

Liquidity matters

The other aim of remaining liquid via cash in savings accounts in a european context is to provide a cushion for the EU and IMF to sit on as they launch another desperate scheme to save the euro, a daft project which has gone horribly wrong...by raiding your savings.

How do they raid my savings?

Just like that. But you're right in your implied comment, it could never happen here

http://www.pistonheads.com/gassing/topic.asp?h=0&a...

http://www.dailymail.co.uk/news/article-2294388/AT...

[Ozzie Osmond]

jonny70 said:

Stock market is high because bond yields are really low,(a lot to do with quantitative easing).This is basic economics.

There is no sign whatsoever of any significant movement of out of bonds.

• You buy bonds for income and security.
• You buy equities for income and growth.

Equity markets are rising due to,
1) Inflation (partly QE)
2) Proven ability of decent companies to run successful businesses
3) Hope of economic recovery and future growth.

[crankedup]

wolves_wanderer said:

crankedup said:

The subject of negative base rates being considered is last weeks news perhaps. People such as me are sick to the back teeth of subsidising those idiots who have taken on large mortgages that they will not be able to service if the base rate rises. Something the Government cannot afford to let happen perhaps, are they in collusion with the 'independent' B.O.E. The point is savers and non mortgage borrowers have been subsidising those mortgages for far too long, perhaps its time the Government cut us some slack and we actually received some interest on our money tied into cash savings.
If people cannot afford a large house they should down size, that is reasonable.

Perhaps you could take some of the value out of your house price inflation from the last few years (money from borrowers to savers/asset holders)

Sorry, I don't follow?

[crankedup]

Terminator X said:

Worst I'm loaded thread ever. If you have pots of spare cash invest it in something else rather than rely on BOE interest rate.

TX.

Worst 'Im envious post' ever. You must know, as all PH'ers do, that you spread your risk in investment. We have worked hard all our lives with many sacrifices made, for example we did not over indulge in foreign holidays or overly flash cars. Call us old fashioned if you like, we were and still are prudent trying to look after what we have worked for.

[Ozzie Osmond]

Some people confuse inflation with value.

Including the government, who now apply Capital Gains Tax to "growth in numbers" instead of "growth in value". CGT = Inflation Tax

[crankedup]

anonymous said:

[redacted]

'Flooding in'

So you reckon its OK to subsidise those who have big mortgages they cannot afford. Why the f**k should I lose out to these chumps. If they can't afford to pay down their debt they should downsize.

Of course I invest and expect reasonable returns, its what the Capitalist Society is all about.

[Willy Nilly]

Ozzie Osmond said:

How can house prices drop?

Look at the returns available on buy-to-let (say 5%) compared with bank deposits (say 1%).

If you think house prices will drop you are saying buy-to-let rental returns will increase. In which case investors will flood into the market and house prices will be sustained.

Don't hold your breath.

The whole buy to let thing was a self fulfilling prophecy.

Owning your own "property" in the UK is the ultimate goal. You have not made it in life until you own a house. Some people couldn't afford to buy a house and some had some spare cash. Those with the spare cash thought it a good idea to buy a house and rent it out to those that couldn't afford one. Every time this happens another house comes off the market and more pressure is applied to house prices. It is not unlike concert tickets. 1 seat is available, 2 people want to buy it but there is only ever one person going to the show. With the house 2 people want to buy it, but there is only one person ever going to live in it.

I'll wager most BTL land lords aren't cash rich. As long as they can make the mortgage payments they are fine. But throw a new central heating system shaped spanner in the works or an interest rate increase shaped spanner in the works and their cash flow suddenly starts to look sick. You can have all the capital increase on the value of the house you like, until you come to sell it it make no difference if the house is worth £1 or £1,000,000, you don't get a cheque each month for the capital gain.

An increase in interest may well be enough to drive out many BTL landlords when they struggle to make the payments. They will have to sell. More houses on the market = lower prices, so people could afford to buy their own place again. The BTLers that know what they are doing may well take advantage and buy more houses or they might sit tight. Interest rate increases will drive people out that cannot afford there repayment now, so you will have a few failed BTLers and a few "owners" that have been struggling.

House prices can go down as well as up. Past performance is no guarantee of future earnings. And all that lot.

[Ozzie Osmond]

What makes you think landlords all have huge borrowing? Yes, I know interest cost gets tax relief. But the key to the business is use of the income stream to buy more properties.

So long as there are plenty of people queueing up to rent decent properties the market is supported. Once the business is up and running a reduction in capital values would make very little difference in any event. The real value is in the income stream - the rents.

[crankedup]

Getragdogleg said:

I have a modest income, I have a small house, I cannot afford to buy bigger. I have no savings anymore because we spent them on plugging the gaps betwen income and bills and repairs to the house.

If the interest rates go up my Mortgage will go up, I will struggle to find the extra money especially since everthing else is going up all the time. the Gas/Electricity/fuel for the car and all the other costs rise year on year and my wages don't, worst case we lose the house after a period with no food/electric/gas or what ever I feel we can do without.

We manage, we never go out, never eat out, the car is 11 years old but well maintained and we are not wasteful of food or electricity or anything. I am at my limit but we claim no benefits.

So, I would like the interest rates to stay put, those lucky enough to have savings must be doing ok if they are not in the position I am in, I had to spend mine to stay afloat, If you have surplus money at the end of each month then good for you but don't complain that you are not getting free money given to you for simply putting it away, please realise that some of us are in quite a precarious and worrying position. You are lucky you don't spend every penny you get in each month.

We know what its like to be in a situation such as you describe, been there and done it. We purchased a home with a mortgage at 7.5% or thereabouts. Within five years the rate was 15%, nobody rescued us with low rates and we had to sell up and restart all over. Its not free money, we worked hard all our lives, took some risks and some paid off, some didn't. We now expected to be able to enjoy a quite retirement and to an extent we do. We have had some elements of luck too along the way but no more I would guess than anybody else. My own family have mortgages on their homes but neither of them took on more than they could reasonably afford.

[ClaphamGT3]

swerni said:

Brilliant.
I'm glad my taxes aren't subsidising selfish people like this.
It's a private issue, why should we pay for your problems?

Because, as his comments on this post show, he's both lazy and rather stupid

[crankedup]

toppstuff said:

Interest rates will be kept low for as long as possible. To do anything otherwise would be disaster.

Asset prices are artificially high.

But the alternative is unthinkable. If the cost of debt servicing rises, then property values will get squeezed as leveraged owners dispose, forcing values down.

In turn, this will destroy even further bank balance sheets holding this stuff as collateral. So we will have to bail them out again.

The world is going to have to kick this problem down the road for as long as it takes.

The issue of marking to market, the true value of real estate assets around the world, is the elephant in the room. Everyone is going to ignore it for as long as possible.

And if the OP is upset about the return on cash, then use some imagination. Forego liquidity in favour of uncorrelated real assets. Get exposure to food, farmland, forests and certain commodities. They're gonna outperform cash comfortably provided you accept you can't go to the ATM to get access.

Agreed on all points. I take the POV that Government is steering a policy of managed decline in property prices. TBH we have always kept some cash, its not main investment, that would be crazy of course. But it still irks when I look at return rates. Looks like good advise on other investment, I need some further advise before venturing forth, we cannot afford to lose out on investments as we are retired and not able to replace loses with earned income.

[turbobloke]

crankedup said:

Getragdogleg said:

I have a modest income, I have a small house, I cannot afford to buy bigger. I have no savings anymore because we spent them on plugging the gaps betwen income and bills and repairs to the house.

If the interest rates go up my Mortgage will go up, I will struggle to find the extra money especially since everthing else is going up all the time. the Gas/Electricity/fuel for the car and all the other costs rise year on year and my wages don't, worst case we lose the house after a period with no food/electric/gas or what ever I feel we can do without.

We manage, we never go out, never eat out, the car is 11 years old but well maintained and we are not wasteful of food or electricity or anything. I am at my limit but we claim no benefits.

So, I would like the interest rates to stay put, those lucky enough to have savings must be doing ok if they are not in the position I am in, I had to spend mine to stay afloat, If you have surplus money at the end of each month then good for you but don't complain that you are not getting free money given to you for simply putting it away, please realise that some of us are in quite a precarious and worrying position. You are lucky you don't spend every penny you get in each month.

We know what its like to be in a situation such as you describe, been there and done it. We purchased a home with a mortgage at 7.5% or thereabouts. Within five years the rate was 15%, nobody rescued us with low rates and we had to sell up and restart all over.

That hair shirt isn't very hairy. How long was the rate at 15%? It was over 16% in the 70s iirc but again not for long - these were short-lived conditions compared to nZIRP for over 4 years already and little prospect of a rise for another 4 years. Some people eh complaining about high interest rates, complaining about low interest rates...

[Deva Link]

jonny70 said:

Im talking about those that bought for speculation because house price were increasing at 20% a year and the btl novices who are being held aloft by low i/r .Im not talking about joe who bought his 4 bedroom semi in 1991 for his family and its his home or professional investors who have been in the property market for along time.

I can't imagine many bought hoping for massive capital appreciation. They'll have been bought based on BTL yield.

I do know people who have bought property and aren't that bothered about the precise numbers - they're buying property to give to their kids or to use as a pension and as long as they don't have to put too much money in, they don't care, basically someone else is buying them a house.

I also know a family building firm who buy for cash anything within certain parameters (size, location etc) - they regard the property as safe "stores" for their money.