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Could we be taken by surprise with mortgage interest rates climbing again ?

by thurlwood54 21 December 2008 |

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In the late eighties/early nineties recession, mortgage interest rates climbed to astronomical levels.
Why was this ? Could it happen again in the not so distant future ?

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JoeEasedale posted
Current thinking is that we are heading for zero ish rates.

The only certainty is that rates change over time. Until recent times you could take any rate there was from about 1950 up to 1995 and say "this rate will either double or halve within 5 years".

I believe that rates are far too low and that a return to base rate between 5% and 10% is about right. Unfortunately for me, I am not in a position to do anything about that at present.

However, if the huge amounts of money being thrown to bail out failures that should be left to go bust, suddenly get loose in the world then massive inflation will hit us like a brick wall. That could see base rates go beyond those of 16% base last time, to goodness knows where - maybe 25% perhaps, but no one knows.
In the 1970's when Labour had to go cap in hand to the IMF for a bailout, part of the price was increased interest rates, and I understand that the IMF forced Iceland to raise rates from about 7% to 10% recently as part of their bailout.

Interest rates are a good weapon to combat inflation which is far worse than high interest rates. Low rates are a stupid way to combat deflation, they just make deflation worse. If we get into a strong deflationary trend then there is no need for rates to rise, but the failed and desperate idiots running the country could do almost anything just to appear to be doing something even if it makes no sense - after all that is what they are doing now.

The only defence against high interest rates is to get your borrowing down whilst it is cheap.
Posted on 21 December 2008 | Love 0 loves Report
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MikeGG1 posted
Of course it will happen again. We are getting panic responses instead of carefully thought out strategies. And it is not just here - they are all at it. Labour spin tells them that they should be seen to be doing something even if it is wrong, ill-thought-out or whatever.

Then they will be caught out again when the pendulum eventually swings back again.

The problems were caused by excessive borrowing in all sectors - personal credit, 125% mortgages and corporate greed. Due diligence went out of the window with high bonus rates. Everything was assumed to be a good deal if it meant a fat bonus.

I have nothing against high salaries, provided that they are earned - and that wasn't happening at the top of the financial sector.

We need a well-thought-out plan and money should be injected into the economy by investment in the future, bringing forward infrastructure changes that will save money in the long-term.

For example, why pay construction workers dole money when they could be employed to build necessary social housing, hospitals and roads? Get something back for what is being spent!

Above all get lending under control and bring back due diligence.
Posted on 21 December 2008 | Love 0 loves Report