Quote:
Originally Posted by imy
your talking about mortgages? people are borrowing over 30yrs, I have a 30yr mortgage term myself. People take out fixed rate products and they re mortgage when they need to. Mortgage rates re-align themselves to base rates. a 25bps rate increase will not have much damage at all.
If someone is paying 1.5% now based on base rate, base is only going to increase 25bps, they will be paying 1.75%. It will take a very long time for base to increase to 1%, and by the time it does lending rates will have reflected this.
My BOE TFS facility allows me to borrow at 25bps to stimulate lending. this fee is attached to base rate so will increase with hikes. my cheap access to cash is dependant on my lending criteria. its a % of what I intend to lend, if I don't lend I don't get it. Just the savers will continue to get hit as demand for retail cash continues to diminish.
Overall some people will get hurt... but only a very very small pool of idiots.
Financial studies should be part of the curriculum at schools - its an absolute travesty that it is not.
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Yeah I'm talking about mortgages, because its the only product that us mere mortals see a direct change in as a result of base rate changes. Car loans, credit cards etc are all largely unchanged since 2007 in terms of APR. Funnily enough property prices have soared in response to cheaper mortgages, much like most other asset classes that you can leverage against with low financing rates.
Sure if it only rises 25 bps which is back where it was last year (before the BOE dropped it for no data backed reason), it wont make hardly a difference. But if it starts rising towards 1.5%, 2% or anywhere near long term normal levels that were promised years ago it will suck a lot of money out of the economy and also put payments up a fair amount for a lot of people when they come to remortgage.
It's not just the rate itself that matters but the knock on effect. Raising rates will also likely put a hold on value increases as it reduces the total amount people can afford monthly. It may even start decreases in which case remortgage-ers will become affected too as their LTV is diminished. Hence I get the feeling the BOE is actually unable to voluntarily put rates anywhere near long term averages and is limited to a token gesture of 25bps maybe once per year.
My concern in all this is that the BOE is completely ammo-less if some external event happens that traditionally would be combated with tighter monetary policy. If inflation starts ramping up at 5-6% what can they do? 25bps isn't going to touch the sides on high inflation levels.