First the prediction:

Interest rates will be cut today and the housing market will take off again straight after Christmas - exactly as it did in 2006.

The government and banks are not going to allow a little inconvenience like a credit crunch to stand in the way. Look at the US - a government imposed 5 year freeze on mortgage rates! Seems they can do anything they want.

Governments are the ultimate short termists. We're half way through a term - they are not going to allow a housing crash and recession spoil their chances of re-election. They will do anything to avoid this. If the BOE do not play ball - Mervyn will go. As sure as night follows day. Then the stooges will do as they are told. The media won't make an issue because the media, to a man, are lined up with the property interests.

So you're lined up against the government, the banks, the media and most of the people in this country.

They will allow inflation to rise and they will continue to lie about it. And they'll inject whatever liquidity they need to to keep the market going. Where will they get the money from? Who knows where governments and central banks get their money from?

If they say they have it, they have it! That is the nature of banking.

I'm not so sure.

The sentiment has upped forks and moved on...


http://forums.moneysavingexpert.com/showth...d=1#post7077427

Yeah. That worked a treat for Northern Rock.

Inflation now will cripple people's ability to pay huge sums for overpriced property. Even a few 1/4 point cuts will not address or rebalance their finances now, but say 20/30% inflation will tip their budgets over the edge. Non-discretionary spending and a huge army of temp jobs reliant on this expenditure will collapse.

There is no free lunch and a very expensive lunch will shut down a large proportion fo the takeaway economy.


http://www.telegraph.co.uk/news/main.jhtml.../08/ntax108.xml
Disposable income at lowest level in 10 years

By Harry Wallop, Consumer Affairs Correspondent
Last Updated: 1:52am BST 08/10/2007

Disposable income is at its lowest level for a decade, as taxes, housing costs, phone bills and travel expenses eat into salaries, researchers says.

Im sure that is what theyve got planned, latest fad from America so it should be good.

Homeowners with mortgages generally don't want house prices to fall as they lose equity in their property. Non owners want prices to fall so they can buy cheaper, while people who own their houses outright probably don't mind either way.

No, the government does not have the power to keep the market going up.

They can keep the nominal value up (through high inflation).

In real terms, that's another story.

Please see signature.

You describe an impossible situation. You can't have infinite HPI and hide inflation. Money will be sucked out of the wider economy just to pay for shelter and service debt. There will be strikes as workers demand >5% pay increases.

Regardless, it is now down to the banks who gets the money. It was investors desire for mortgage backed securities that drove the market up to this level. That demand has now gone!

Are you suggesting that house prices will inflate below the rate of wage inflation? Because if you are ... well I can't see it myself.

I have observed a world where, for most people (certainly in unskilled and semi-skilled jobs (building industry excepted)) wages, in real terms, have been static - or, in many cases, falling - for 20 years. I'm thinking administrative office jobs, call centres, lorry drivers, retail etc. I can't see how our economy can afford high wage rises.

No, borrowing costs will be reduced and money will be created out of thin air to keep the party going for another two years - until the next election.

Interest Rates would have to drop to 5% just to stop house prices falling, actually it would be better to say. Mortgage rates need to drop to 5% to stop house prices falling. That would probably require either a base rate of 4.5 to 4.75% OR for the penalty rate to be reduced from Base rate + 1% to something like base rate + 0.25%



the goverment does have the power to keep HPI singing for another two years, but it would require interest rates to go down to 5% very fast, and then down to 4% slowly.




possible, but unlikely

I agree you can't have infinite HPI - just until the next election. Why hasn't 'money been sucked out of the wider economy just to pay for shelter and service debt' already? Some would say it has. I know people who struggle to get by - and who top their mortgage up by 10k every now and then to pay off their credit card debts. On the face of it, if you own a house 'worth' 300k and it goes up in price by 5% a year - all you need to do is re-mortgage every couple of years - add 20k to the mortgage and find an extra £100 a month ot pay the mortgage increase. If you earn 30k a year and your wages go up 2.5% a year, your salary will have increased by £1500 over the 2 years - enough to pay the mortgage. You can carry on regardless buying your take-aways and enjoying your nights out on the credit cards etc.



No, it is down to the government. The government will do whatever is necessary to keep the party going. Money out of thin air sir? No problem!

Let's see. I say that just one 0.25% cut will ignite the market after Christmas. People don't sit down with a calculator and work out to the last penny if they can afford to move house ... the whole thing works on sentiment.

'Thank heavens they've cut rates - everything will be okay now - let's get the house on the market and move up.'

dont know if you noticed, but the interest rates charged by banks to mortgage holders are now detached fromt he BoE rate.

They charge a proper margin, they charge a fee up front to offset any teaser rates advertised, and now, they need a RISK PREMIUM to satisfy any investors who might like to buy the mortgage tranches.

PLUS as there is a shortage of cash, they are very picky who they lend to.

NO, they have no control over the housing market any more.

Not quite. In 2005, the banks were more than happy to give 2 year fixed rate mortgages at around 4.5%.
Which was all well and good at the time, the only problem was they were lending money they didn't have.
The money was being borrowed on 3 month inter bank lending which was around the same percentage as
the fixed rates themselves. The trouble is the banks are now having to subsidise those 4.5% mortgages as
they are now borrowing the money at around 6.7% inter bank, well the ones that haven't repackaged the mortgages
and resold them to a greater fool that is.
2006 It is not.

Why are some forum members so easily rattled and swayed by media bilge?

Stick to your guns!

Rate cuts now are to save the banks' arses and try and stave off systemic failure.
The "party" ended this summer.
Give it up.

That might be because the media are, even as we discourse, influencing the MPC with their manic headlines today.

It is the MPC that should stick to their guns. But they won't - because of media pressure.

And, the minute they capitulate - at 12.00 today - the media will be full of 'crash averted' stories tomorrow - Bank provides Christmas cheer and a Happy New Year for home owners and the merry go round will get another spin in January with a re-vitalised housing market.

does that alter the physical facts?- credit crunch, increased lending charges, increased lending fees, criteria tightening- no

Yep, which is why they are guaranteed.



No, the party ran out of booze in August but the BOE will walk in with a crate of Stella on their shoulder at 12.00 today.



This is a re-run of 2005. Slowing housing market. Doom and gloom. Rate cut before Christmas. Housing market takes off like rocket in New Year. If you're in a position to buy, might be a good idea to plunge in.

Yes it does alter the physical facts. Lending charges will come down - liquidity will be pumped in - criteria will not be tightened. A cut today will signal to the banks that they can get away with anything. So they'll carry on. The credit markets will open again.

which lending charges do you think will come down?

If that's what you think, go for it.

The rate will be cut today but there will be no 'dead cat bounce' this time. House prices have passed the peak and are on the downhill slope. I predict all index's to be showing a minus in the annual house price figures by July at the latest. At the moment we are seeing monthly figures as a minus but the annual rate is still plus. This situation has no more than 6 months left in it. Mark my words.

I may well do. I don't want to watch the first 6 months of 2006 happen all over again - while I am out of the market.

ah, I see we still have a live one...

thank god otherwise we would just be agreeing with each other & swapping 'I told you so' stories.

ps - can you explain why the Japanese property market still crashed in the 90's when they dropped IR's to 0% ?

No rate cut today. Sorry about that.

Yep and we had reached that point precisely in the latter half of 2005. They cut rates 0.25% and off we went again.

Why no 'dead cat bounce'? The credit markets? The government will do whatever they have to to get the credit markets functioning again. Maybe they could freeze interest rates for mortgage holders for 5 years - like the yanks.

No, I think you are giving them too much credit and power.

No it isn't

Did we have a bank run in 2005?
A credit crunch
So much negative sentiment in the media? (Even the beeb are surprising me)
petrol and food ramping up?

Nope.

Even people at work are muttering about big drops - as though they are some kind of prophet

Sentiment is not something you can change overnight. We've had months of drip,drip,drip from the media now.

I don't know about you but I'd be scared s**tless to buy property now (assuming anyone would lend me enough money)

No idea. But then again I don't think the economies have much in common. Also, that was then. This is now. This is the UK. This is New Labour 2.5 years away from an election. This is a government that will do anything to hold on to power and to 'protect their record'.

They are not going to stand by and watch the housing market crash and a recession kick off. They will do anything to stop that.

Like the yanks now. Freezing interest rates for mortgage payers for 5 years - pretty radical eh?

Think Gordenron won't follow suit. He may even trump them.

Been following the BBC take on this and its slowly moved to expecting a cut as we'd expect. The most interesting bit though is the very last sentence.

"Experts have said that even if a cut was made to rates, most lenders would be unlikely to pass it on in full to mortgage borrowers. "

So unless your on a tracker a cut isnt going to make any difference anyway.

But then if you take into account price increases next year, increased tax for most people due to the basic rate changes, council tax increases expected to average 4.5% (inflation at 2% my @rse) increases in food/petrol that have yet to make much of an impact then even that will make the £20 saved in interest per £100k mortgage irrelevant on a 1/4% cut.

http://africa.reuters.com/top/news/usnBAN6...ml?rpc=401&

President Robert Mugabe's government lopped off three zeroes from the local currency in July 2006 in its fight against inflation. Zimbabweans still find themselves having to carry huge wads of cash for basic transactions.

I very much hope you are right. I'm afraid you are not. One thing I have learned from the last few years is the incredible optimism of people. You couldn't take on a 250k debt for 25 years unless you were incredibly optimistic about the future - your health, the health of the economy, your job prospects etc.

This optimism is like a jack in the box. When there is a smidgeon of good news, it springs out of its box and buys another house with an even bigger mortgage.

from what im told



japan manipulated and worked with the banks to distort markets!


there where, in reality 2 base rates.
One for Consumers, and the other for Forigners and big business.



Consumers where never offered near 0% interest rates, NOT becuase the banks didnt want to lend to them or becuase it was too risky, but becuase there was no competition and the goverment didnt want average internal consumers to have access to credit that cheap



what that ment was, japan could keep an artificially low currency, becuase they where keeping an artificially low base rate. This had two Advantages for japan


lower the YEN, boost exports. Which is an advantage for them as they export more than they import
The Yen Carry trade, a LOT of money is borrowed in japanise Yen, and invested in other currencies, Japanise banks make a margin on that with very low risk (or so the banks thought)



but as most people say, there is no free lunch!



the problems this created is that, a lower yen ment anything imported into japan got more expensive. So 10 years ago heating your house and keeping your car moving might of cost you 10% of your pay package. Now it is costing the average japanise man say 20% of his pay package


IE they are importing inflation into their system, which is hurting the average consumer.



they went on a large bet that forign exports would keep japans economy strong, the only problem is, the way they tried to increase exports (via currency manipulation) ment that internal consumption would suffer in the future. Which is happening now, with toyota selling all time lows within japan.



so, the difference is. japan polititions, businessmen, and banks all worked together to create 2 base rates, one for the people and one for big business and forigners. The latter was at 0% the former was always much higher!

Its a political "im doing something to help" ploy from the president, They dont have the money to bail out more than a few victims, and thats precisely how many it will be- a few.

The reason- well they are going to introduce criteria, they will need to review and get approved those criteria, then theres the forms to fill in, then theres Government approval- so much prevarication- it will work about as well as the schemes fanfared here for key workers to get on the housing ladder- so few got it to mention

You are doing your best to put the bull case, albeit somewhat hysterically but this is not 2005 and there is not going to be a rerun of the sentiment change that happened back then. The situation is completely different today, for starters there's a credit crunch and interest rate reductions will not alter that.

Any rate reductions today will be seen as a sign of weakness, sterling will be marked down accordingly, and we will be importing more inflation. The stagflation scenario is beginning to look increasingly likely.

It's about sentiment, not working out on a calculator exactly what you can afford.

Yes, this is precisely where in the classic bubble pattern there is a bull trap (Not a dead cat bounce). people see that the crash is not on, so some pile in only to find the crash hasnt really started yet- hence its a trap for bulls!.

You may be right, its bull trap time, but IMHO the legs have been kicked out from under the market, regardless.

Example of hysteria please.

Just because someone offers a viewpoint different from yours does not mean they are being hysterical and it shows the empty nature of your comments if all you can do is characterise mine as hysterical.

Oops! Sorry, that was a bit hysterical!

What about the sentiment of the banks? The lenders might lend but will it be like before? And will they lend as much as they did to the brokers? I can imagine some of them are still dribbling after the 9th of August.

By that logic, I already own a Learjet.

Perhaps you are right. My biggest worry is that the longer this goes on - the longer it will go on. Whenever you get a bull market - in anything - there is always a sentiment around that is waiting for a bear market to follow.

But when a bull market hits a plateau - and stays there for years ... well the longer it stays there the less chance there is of a sort of 'reaction led' reverse. We have had very high house prices in this country for 4 to 5 years now. Every year more people buy into it - by moving house and taking on more debt. It's not like a stock market where a massive bull market can reverse overnight.

You make that comment as though it disproves my assertion that many people simply live beyond their means and top up their mortgages every couple of years to finance their lifestyles.

Just because you don't do it doesn't mean others don't and, more importantly, doesn't mean that the actions of others don't affect the housing market.

Rate drop at 12.00 today. Party continues in New Year.

Very amusing but perhaps you'd like to address the point about the ongoing credit crunch which several posters have already referred to.

Whether or not there is an interest rate cut today, do you really imagine that the housing market can take off again while the easy availability of cheap credit has dried up?

Precisely

and it's substantially weaker than 12 months ago. So much so, that even our old VI friend (the BBC) is joining in on the parade.

If they drop the interest rate by .25 or more then; petrol and other fuel goes up, the price of food goes up, the price of many things will go up (including Gold ) but i will bet the shirt on my back that the banks will not pass that on to mortgage payers. Interest rates held last month but mortgage payments went up regardless.

They must hold the rate where it is today otherwise the cash strapped home owner will be celebrating a false dawn as other expenses cripple them.

Remember the credit crunch? where is the money going to come from to finance another million mortgages? House prices will fall hard whatever happens to interest rates. Only an idiot would get on the housing horror ride now and first time buyers are few and far between.

The BOE is concerned with inflation, not the housing crisis, why?, because in a couple of years Gordon will be able to say that housing is now affordable for everyone.

The housing market is whey beyond saving now folks. i say Hold.

The banks! They can't wait to get lending again! They just need a sign from the government that they will be bailed out and moral hazard is not an issue.

The government, via their mouthpiece, the BOE will provide the sign at precisely 12.00 today.

This will be followed by a great rejoicing throughout the land.

Christmas - and all the debt it involves - will officially be back on and in January re-mortgaging will be back to business as usual.

Come forward you indebted slimeballs. Bring me your debts and I will increase them. Bring me your greed and I will sate it. Bring me your payslip and I will help myself to a large chunk of it. But, most of all, bring me the deeds to your house and I will put a charge on them.

yes i agree, the pound will be sacrificed and we will get higher inflation on imported goods...