Great video as always! Questions: Can, below inflation, pay increases drive up inflation? And, if wages are driving up inflation, is it public or private sector pay increases that are creating the pressure?
It is gone, we lived through the zenith of our time. These bourgeoisie individuals in tandem with the corrupt govt. will take down this country like what happened to Rome. My condolences to anyone approaching retirement, you may have concerns over whether your pension pot will stretch to cover the rising cost of living, bad regulatory policies, bad energy policies and insane fiscal policies
I'm 54 and my hubby and I are VERY worried about our future, gas and food prices rising daily. We have had our savings dwindle with the cost of living into the stratosphere, we are finding it impossible to replace it. We can get by, but cant seem to get ahead. My condolences to anyone retiring in this crisis, 30years nonstop just for a crooked system to take all you worked for
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Zero interest rates for 13 years at the expense of savers allowed house prices to rise unchecked and encouraged desperate people to over extend their borrowings. Since 2007 BoE , Government's of all hues and borrowers are responsible.
My Dad in 1957 - you can borrow 2 x salary with a 10% deposit. Me in 2005 just trying to find a new mortgage deal, not even move house - you can borrow 6 x salary, buy a large house, a new car, have a fancy holiday or two. Please have as much money as you can take away in a wheelbarrow. Add to that the BoE printing money and de-basing our currency has led us to being in what's known as - deep shite.
The UK mortgage crisis is hardly understandable seen from France. Here most mortgages are fixed rate. Besides the borrowing capacity of individuals is determined by monthly income , not by the supposed value of your property. Hence house prices do not have the obsessional dimension they have in the UK.
Borrowing capacity here is based on monthly income. The problems are not singular, it is a compound of 30 years of lack of building social housing, stagflating wage growth, and the past decades of record low interest rates. On top of an economically uneducated nation.
@@piccalillipit9211because the UK has a horrible voting system and gullible voters resulting in a hyper capitalist society which doesn’t take kindly to increasing housing supply, decent rental housing etc.
@@roboldx9171except mortgages were NEVER decoupled from your income. It is very much based on affordability, house values are secondary to the process.
2 words: Andrew Bailey. When you appoint a career incompenent, you will get incompetent policy. The entire MPC aren't fit for purpose. I fail to see how the BoE can retain its independence after this fiasco. The place is infested with groupthink and needs a complete overhaul.
Well, especially in Eastern Europe it's more common to own than not to own your home and maybe sometimes 2-3 other properties. Rental income isn't a wet dream unless you're in a big city and the infrastructure, maybe old or poorly maintained is still sufficient to support the population
@@boandonoff4026 Communism provided socialist policies that actually did good for people and welfare. As a Bulgarian I've noticed it and also the class divide in Britain plus the high crime rates. You'd never be homeless in Eastern European, but you will likely be poor, miss educational opportunities(as EA now is practically colonised by the West and within it's sphere of influence) or be unemployed or working something that is way below your qualification level. This is not the case in The UK although it may change if the employment market dips.
@@bangdobrich Well my 14 years have been in Bulgaria - the country has changed beyond all recognition and many of the people I now have returned from the UK to Bulgaria as they can now have a better life here. At the same time quality of life in the Uk is declining very rapidly. In the next 5 to 10 years quality of life here will surpass the UK according to the statistics. And YES one of the big factors is the availability of low cost housing. I live in a 65m2 apartment on the edge of the sea and it costs me £150 a month.
@@bangdobrich I am also a Bulgarian, living in the UK for the past 6 years at what I call a semi-skilled job. I don't think the quality of education we have in Bulgaria is poor, quite opposite - from what I see it's much poorer in the UK. I agree that people tend to be poorer in Bulgaria or the unemployment will be higher, however this changes with Business investments. I do plan to return to Bulgaria at some point - because the lifestyle is so much better than what the middle class in the UK get, however the financial opportunities in the UK are still far superior.
8:50 it's not that buyers KNOW they can ask for a discount, they HAVE to ask for a discount, buyers have less purchasing power with higher interest rates. The rising cost of the mortgage means that buyers have to borrow less to make the purchase to begin with, as far as the buyer is concerned, they're not the immediate benefactor. The seller is the one losing out, but they've only lost out if they're receiving less than what they themselves paid to gain the home in the first place including mortgages, solicitor's fees etc.
I think many people are economically ignorant and don’t understand what is coming down the track. To imagine people have hundreds of pounds of spare cash to pay an ever increasing mortgage bill is ludicrous.
I had so many conversations with people n line that went "at 0% base rate it is 100% guaranteed the rate will go up, have you considered this?" the reply was usually abuse.
@@chrisl.9750 Agreed, it's a question of priorities. From a personal perspective keeping a roof my head is my top priority, nice holidays, the latest I phone and a new car I can live without.
@@dc6807 What you mean buy a house for 2 X your salary and have your entire family live on one salary YES we should all handle our money like boomers boomer. Its all that avocado toast the young ones buy isn't it, the evil little f-ukers, dont know they are born having a house at 14 X your annual salary...!!!
This is catastrophic. People cannot find additional payments of up to £1000. People will have to reassess their lives as to whether they can afford a mortgage. Thanks for pointing out the role of QE which basically kept asset prices up.
I studied economics as part of my degree at uni. I have always had a view about what the Tories should be doing (within the constraints of their view of the world) and what Blair/Brown should have done (within the constraints of their view of the world). But now I am stuck for policies to recommend. I really cant think what the Tories should be doing to make the economy better, nor what Labour should do to make the economy better. The economy needs to grow, but any increased spending by Tories or Labour in my opinion will just add to our debt and make matters worse. Similarly the public sector has been cut so much I don't think it can be safely cut any more. All we can do is wait for inflation to fall, which might not happen for several months or might not even happen enough in the next two years. I think the UK has hit its credit card limit and can no longer afford to pay the minimum payments just as its income is falling (in real terms) whilst the bank is putting up the interest rate. In short the UK can no longer afford to pay ofr the standard of living we have come to expect - and no one wants to hear that and no politician will say so. Economics Help, do you have any suggestions for policies to get the UK out of this mess? I'd love to see a video on your suggestions / the options open to government to pull us out of this nose dive that we are in. Remember that government receipts are actually artificially high because of all the buy to let owners who have been selling houses and paying vast amounts of capital gain tax - and surely these receipts cant keep coming in for more than a few years.
There isn't actually any evidence to suggest that large numbers of landlords are selling. There are statistics such as the English Housing Survey, which shows what tenure households have (owner occupiers, private rented sector, social housing) and of course also data on the number of BTL mortgages. Neither indicates a large number of sales. Just because lots of people are stating that lots of landlords are selling doesn't mean it is true, especially if they never reference official statistics. Lots of these people are not entirely unbiased (it is generally landlords trade bodies, etc)
It makes sense to me, economically, to lend exponentially until everyone is loaded. Once everyone is loaded with debt, the spending stops. Time to crash it. Push rates up. No longer afford the stuff they’ve bought. 2 years people lose the assets. 5 years later, cycle repeats. I didn’t do economics, but I see too many people saying it’s not fair what’s happening. It’s not meant to be
I actually think Liz Truss idea of growth would have worked. The issue is also the fact that the UK generally imports more than it exports ...UK needs to get back to producing goods. There has been too much focus on services
Bond yields didn't soar because of the Truss budget higher spending. The yields are high now but we don't see the same media headlines. The reason the bond yields soared was because it was a vigilante hunt on the Pound coming two weeks after the Yen was hit. Investors knew that the mix of political instability and misdirection of the media coupled with the fact that the public pension funds were leveraged to the hilt (due to low interest rates having them search for return with more exotic instruments) would make an easy up-down trade. The yields shot up because pension funds got margin called and starting dumping assets which were predominantly gilts. The BoE then stepped in and paid over the odds for gilts quelling the issue. The BoE then put in place an emergency funding measure to stop this from happening. But they had caused the mess in the first place! Truss's budget wasn't disastrous. Bold yes but it focussed on building business, helping micro and small businesses and trying to make the UK more self-sufficient (Net Zero stopping drilling being one such nonsense). As for the increased deficit, after Hunt did his budget suddenly another £50B in deficit was discovered. It was all a ploy to stop the return of small entrepreneurship in the UK. And they hadn't even started because other tax reforms were planned.
Exactly. They used the 5% 2 year gilt yield as an excuse to get shot of Truss but that was not her fault and came from global FX factors and pressure on sterling. 2 year gilts are now in excess of the Truss days yet nobody is having a go at getting rid of Rishi. Oh well looks like rates will keep going up to 8% by December but hey, at least we're not stuck on an OceanGate Titan next to the Titanic with no way to escape.
This Inflation isn't demand led, it's supply, and prices of staples that are going up. Not salaries or luxury goods. This needs government policy, not just the BOE. What will people do, not eat, freeze? Banks are raking it in.
@@jjefferyworboys8138 Not in this case, no. 10 years of QE can't suddenly result in higher inflation in 2022 even though before that inflation remained low.
House prices are vastly inflated. Therefore many people had to take out very large mortgages which they could afford as interest rates were low. They are having trouble paying the large mortgage at low interest rates. They have no margin to pay more. Because the mortgage was so large any slight change in interest rate is catastrophic.
Mortgages should be limited to 3.5 times someone’s salary and 90% LTV, and add 5% to buy to let mortgage interest rates. Remove those barriers and the housing market runs away. There are still the same number of houses so the prices stabilise at sensible prices. The only people to lose out are the banks…. I wonder why the checks and balances aren’t there! We learnt nothing from the 2008 crash ☹️🤑🤑🤑
@@user-zz9gn2dc3l barcleys, they have a rainy day savers account. 5 percent on everything up to 5000. Add and withdraw as much as you want. I love the account
So going back to what is a normal situation is now deemed a crisis? I know it is not a popular posting to say this, but interest is at about its long term normal level. So all those that now demand "support" because they can no longer pay the mortgage have just been living above their station the last decade.
There can be no mortgage stability with out long term fixed mortgages, I am an American and a Realtor for over 20 plus years in the U.S. any home buyer can get a 30 year fixed interest rate government backed, or commercial mortgage with as little as 3.5% down payment, and can refinance that mortgage if the interest rates go down. It is madness to buy a long term investment like a house using short term money, it is the exact opposite of stability, as you are always at the mercy of the uncontrollable markets, and one step from disaster
Clearly People Over Leveraged but the question is can you blame them? You go to a Broker or Mortgage Calculator and it says you can afford a £400,000 house then the first thing you do is filter that amount into Rightmove and off you go. Interestingly House prices are still high with sellers refusing to lower price to reasonable levels or just flat not selling to ride out the storm.
People measure their wealth on the value of their house, the very house that the bank owns. Cognitive dissonance sets in. In reality very high house prices are just another form of punishing inflation for the average working person wanting to buy a house. The 'market' goes to great lengths to keep the bubble going. At some point the sht hits the fan.
@@vihuelamig Yeah a house is only worth what someone is willing to pay for it. You may think your house is worth half a Million but that doesn’t mean it’s true if you actually need to sell it. Usually Unemployment does the work of reducing prices which is what is so different about this period as people still have jobs We need a very public crash if nothing else to re adjust people’s expectation in line with the new Economic reality in this country
As we saw previously crashes people imagine that if their property has negative equity. They can just hand the keys back to the mortgage company and walk away. Not realising the loss in value will have be paid for by them.
Unless you've got a lifetime mortgage with a No negative equity guarantee, then you'll still owe the bank the remaining mortgage debt if they can't sell it and repy the total balance. Its not just a case of handing the keys back and walking away, one would likely end up filing for bankruptcy.
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Very likely to be tax increases after the election too, irrespective of the party elected. There is no ongoing investment in British industry post Brexit, post Brexit customs infrastructure needs to be built and the NHS need a lot of funding. The party elected will just spread the pain differently.
That's actually not true, we have a record number of overseas entities investing into new financial products through the city. We also have over 90 trade deals which is more than the 76 the EU has. I don't know where you get your information from but we are still the 6th largest economy in the World at over £2.2Tpa and a GDP of 4.1% which currently puts us ahead of many EU countries. I think the trouble is a lot of people don't know what we do, but I personally work with several multinational companies setting up funds to invest in the UK, predominantly financing development of commercial property and infrastructure. So I don't know why you think companies aren't investing here?
@@user-gz6tx6yp3v The UK has suffered a loss of business investment since the 2016 Brexit referendum worth £29bn, or £1,000 a household, according to a study by the Bank of England. Jonathan Haskel, an external member of the Bank’s nine-strong monetary policy committee that sets UK interest rates, said private sector investment “stopped in its tracks” in the years following the decision to quit the EU. (Guardian 13.3.23) and in addition around GBP 40bn a year in lost tax revenues (Source: London Economic 21.12.22).
@@user-gz6tx6yp3v We have only 4 post Brexit trade deals of any consequence all of which are poor to worthless. Japan where trade has since declined (Goods -4.9%, Services -2%, Source: Guardian 26.11.22), Australia & New Zealand which have no net benefit to the UK as admitted in Parliament (Eustace), and the EU of course which was largely in their favour (Sunak). All other deals are rollover deals negotiated by the EU while we were members. The CPTPP is another almost worthless deal where we already had trade deals with 7 of the 11 members. It will barely show a positive benefit (0.08% to GDP best case) to the UK after 15 years. (Source: CSIS 31.3.23). So it is all ´´Window dressing´´.
Mortgage Rate was 13% when I bought my first house in 1982 and was 17% in 1980. We were only allowed to borrow twice the main wage earners salary plus once the second income, this ensured that the mortgage payments could be repaid nd were affordable. The problem nowadays, easy money and self certification and greed have taken over. People look at houses as property investment but in reality it is your home. The easy money has pushed up house prices compared with a multiple of your salary. So all homeowners under the age of say 50 have not experienced double digit mortgage rates and think that low interest rates are normal. The problem now is greed, borrowing money is easy, but people forget it has to be paid back and borrowers do not allow a safety margin if rates go up! Now we have a raft of people complaining its the government's fault and they should bail them out, when in effect its a global problem. Governments have never bailed out homeowners, whose houses have doubled in value every 10years on average. I can see house prices drop anything between 20-30% as demand falls away, that is long overdue!
If you borrow the money then you need to accept the risk. Over a 25 year period of a mortgage payment, the chance of interest rates staying low is very small. The whole problem with our country is that its economy is based on house prices and the assumption that they will rise indefinitely. If you think paying a rising mortgage is bad, spare a thought for the people that are fleeced by landlords through buy to let. Build more houses FFS and tax the wealth of the top 1%.
25 to 30 year house mortgages at fixed interest should be available generally in the UK, as in the US and other parts of Europe. This cuts out the banks profiteering on short-term interest deals and gives borrowers stability.
if inflation is caused by elevated prices on essential commodities like food shouldn't the goal be to bring down the price of food, rather than increase interest rates till people can no longer afford to buy the food? People kinda need to buy food
Yikes! This might be the case. I'd suggest that people should not buy at the moment. Save your money. Buy when the prices have gone down 30-50%. Why would anyone take up hundreds of thousands of pounds worth of DEBT with volatile interest rates.
The scale of this level of quantitative easing has never been seen before... How about Venezuelan, hungary, Argentina, weinmar republic, Zimbabwe etc. It never ends well
Didnt understand why Truss went. She was clear on what she was going to do and needed at least 6 months to try this out. The BoE has only 200 billion in gold, where does the rest come from? Printing money? In the 80s our mortgage interest was c 15-20%. Didnt over stretch.
No mortgage crisis here - i fully paid up mine back in March. Did it in 12 years whilst the rates were low - I sacrificed many luxeries, did without and literally suffered a very low standard of living for 12 years in order to make the overpayments.
@@jjefferyworboys8138 some people's priorities are fancy holidays, flash cars, designer clothes - not me, back in 2010 my priority was to be totally debt free & fully insulated from what we are seeing now.
@@ep1929 Yea, try doing that with a 400K mortgage - people with recent mortgages are really over a barrel - you just cant save up that kind of money with the current cost of living...
Your critique of Truss' budget is that tax cuts would not increase tax revenues, but there are many examples of this being proven in the past; and conversely that tax rises reduce tax revenues. Indeed, with high tax rates now, we are seeing more earlier retirements or reducing hours causing a labour shortage as there is no appeal to work (or indeed work harder for 35% of the income). There is no longer an incentive for entrepreneurs and wealth creators to make an effort, at least not in the UK. Economics can never be predicted as is evidenced by supposed experts every day.
Good video, but I strongly disagree with one statement: "Homeowners have been rational in taking out ever bigger mortgages, despite very high house prices, because cost of borrowing was so cheap" -- there is nothing rational in this. There is nothing rational in just blindly assuming that interest rates would stay at the record low level for the next 20-30 years, there was no good reason to think that they would stay on this level for more than 5 years. Loads of people maxed out their mortgages as they've seen "cheap money" and nothing else, very few considered what will happen when interest rates will go back to the previous (average) levels. I guess they have to think about it now...
Funny how Japan has 0% interest rates since 2016 and dosnt have a big inflationary problem. If they raised rates they’d have inflationary pressures due to increasing costs for business. Same can be applied to Switzerland who have a 1% rate. This is gross mismanagement by govt and fuelled by Bank of England into a self perpetuating cycle. Raising rates increases costs which pushes up prices which in the use of the term currently is inflationary. Govt dosnt borrow, bonds are just interest bearing cash to take liquidity out of the market. Like putting cas reserves into a savings account.
Thanks, Tejvan - if the transition mechanism of interest rates take 18 month to have any real impact on the economy, I can't see how these small, incremental rate rises are going to have any real impact on the current core inflation pressures; if the Central Bank BofE has reacted so slowly to the affects of core inflation, they must now anticipate the current inflation levels, accounting for time lags, are going to persist well into 2025 which, with their base rate hikes, will lead to a technical recession. The MPC has been woeful in it's management of contractionary monetary policy and a misunderstanding of the inflationary effects of the economic headwinds the UK faced post Covid. Can see it conflicting massively with other macro objectives - wrecks any attempt by the Government to save the election (or attempt at growth) with any tax cuts.
If you’re “growing wealth but not income” aren’t you just debasing the denominator? The house that was worth £150k is now worth £250k: it’s still the same house, you’ve just devalued the money.
There's no mention whatsoever in the media of the (in some cases huge) capital gain that many mortgage holders will have made since taking out their mortgages, no doubt because to mention the capital gain would undermine the lurid portrayal of the situation. If you can't afford your mortgage repayments, sell up, cash in on your capital gain and rent, freeing up stock for prospective owner-occupiers and making things easier for those who have been trapped in rent by dampening overinflated prices, which will eventually help you to get back into owning yourself. It's win-win for the vast majority.
My Nationwide mortgage interest rate was 17% in 1977...and inflation was about the same. Interest rates have been far too low for years...so the 'Buy to let' people have been loving it. Don't forget house prices keep the UK economy going ! 😅
Yes, but the extent of ‘buy to let’ is also a dangerous sentiment indicator, as it will be potentially the unwinding of property leverage feeding upon itself that will lead to a property price deflationary spiral?
Raising interests is a tool used to curb inflation by reducing consumer demand. Current inflation is caused by problems of *supply* (especially food production and imports after BREXIT). Reducing the amount people have to spend on scarcer (therefore more expensive) resources seems perverse.
Government borrowing is not the same as credit card or personal debt. Insurance companies buy government debt (gilts) in order to have income to pay their pensioners. When QE came along these insurance companies could not buy gilts and the rates were low, so they had to increase risk. Guess what they bought? Shares, property and private equity with the result that all of these became overheated. So who won from QE, well if you had a share portfolio you could sell, or a second property or owned your own company which PE wanted to buy you made out like a bandit. Hence the huge increase in wealth inequality.
6% borrowing rate was the was the norm about 8 years ago. Wasn't that long ago it spiked to 15% now that was a killer, it was only a short time at that rate, that caused panic. I don't why the bank of England, didn't put the breaks on a few years ago., instead of letting people borrow ridiculous amounts of money, and lenders lending money they never held as securities, actually borrowing money the give as loans. Surely is a recipe for the financial can being kicked down the road.
Spurring economic activity post-2008 (2:42) with low interest rates was, in hindsight, seriously misguided. The recent IPPR report shows that UK business investment was 27th (out of 30 OECD countries) in the past decades, damaging competitiveness and creating skills shortages that a strong HE sector and immigration can only make up so much for, so naturally most of the cheap credit went into consumption and existing assets, rather than improving and increasing our capital stock and productive potential.
Taking on big mortgages to buy expensive houses isn't "reckless borrowing" - it's absolutely unavoidable. Everyone needs a home and the rental market in many areas is even more expensive if you can find anywhere at all. Most people are not 'choosing' to go into debt, the market is compelling us into debt. This is why simply raising base rates and refusing wage rises will not cure this crisis. Far wider and more drastic policy changes are needed and no political party so far has the guts to even discuss them.
It's the ever rising price of housing that is causing the problems with the economy. Low interest rates and people buying what they can't afford. The constant borrowing against the property prices that force property prices to increase and so on, all at low interest rates. Either they fix the low interest rates and increase them or we are heading for a much bigger crash where everyone will lose, you will need a wheel barrow full of money to buy a loaf of bread. People buying what they can't afford, paying with money they don't have. I got no sympathy for them, sell those houses while you can get a decent return prices need to go down. They say there is a housing shortage, no there is no housing shortage, investors buy up all the houses and sit on them waiting to make money off them long term, thus forcing prices up, and causing a crash causing prices to go up. How can a house bought 10 years ago be worth more than double without something collapsing.
Tax cuts have historically led to more money being spent and usually lead to more gov revenue. Some cuts in gov waste could offset that too. Government long-term borrowing, with solid repayment schedules, lowering interest rates and attempting to boost productivity is worth it to aid the people as a last resort. Just not to excessive levels. Ending the war and lowering spending on free cash would help too especially the overreaction to the pandemic. But that's already happened...
Now happy in Spain 🇪🇸 , yes we adored "We are a grandmother " we bought to renovate the cheapest house we could find 13 year mortgage with life insurance with the Pru , we managed fairly well even when the int rates went to 16% , well folks you can't beat the Tories for F ing things up .Watch this space for repossessions that nobody can afford!
It's so sad. Why do we need the Bank of England? Why don't we print our own money? Why do we need the same old parties to tell us what we can and not do? People this will be your last chance!
Indeed. However the income:housing expenditure ratio was much lower, due to absurdly high house prices we are now paying a far greater proportion of monthly income on housing coats, even at 0.5 - 1% interest rates.
The UK plays at encouragement of home-ownership. If it was serious about it, it would do the same as other providers in the US and parts of Europe and give fixed-interest 30 year loans. What it currently does is encourage profiteering by banks on short-term mortgage deals, crippling home owners with random, rapid and unaffordable interest rate increases. Get it sorted, UK!
Can’t help feeling if the UK was in the euro and EU things would be better. The UK is reverting back to seventies style stagflation and economic volatility but worse !
You need to see late 70s when interest rates went from 7 to 17% in a couple of years and from around 8% to around 15% in the late 80s My dad got hammered with the 70s and me with the 80s The real point is why interest rates have been at near 0% for 15 years.
I often wonder, who on earth invented the complicated world of economics. P. S. I think US inflation is lower at 4% because they don't calculate it the way we do in UK, Australia, NZ...?
Fixed mortage rates are limited to make bankers rich. That money was created the day you took out the loan not 2 or 5 years later.... And that isn't how other european countries do it.... Fixed mortage rates usually last for the duration of the mortage.
This is not a but of the system but a feature. Ask all the politicians who work in favour of the banks instead of looking after their constituents. And central banks are legalised theft of income.
this analysis 1 fundamental error. Accommodation problem. Growing population, immigration and shortage of the space close to work, with rental increase --> push buy a house instead rent. Here in Australia, rates up, hose prices also up. WHY? Very serious shortage of house. Accommodation problem is bigger than economical problem. Unless heavy tax on second dwelling, if the accommodation problem continue, prices will increase imho.
@@Christian-uj1mq In your dreams. All it will do is hurt those with mortgages and they have not caused the inflation which BTW is way above the governments indicated rate. Interest rates are the tool of choice to hit the poor and middle class.
You play silly games, and you win silly prizes. If you thought you deserved a lovely house in a great neighbourhood that you can barely afford on good times, its your own fault if you're unable to repay it when the rates go back to its normal pre 2008 levels. If a household earns 100k a year, the banks are willing to lend you up to 450k, does it mean u should aim for a house worth that much? Nope, instead you could have settled for a house around 250-300k, and even if you were one of those unfortunate ones who were on a 2-year fix which went from 2-3% to 6%, you'd still be alright, since you're not overleveraged. First-time buyers scheme was a big culprit in increased prices for new builds, as vendors simply bumped the prices by 20%, since the govt was giving you 20% of the property's value with 0 interest for first five years. Take ownership of your actions and deal with the consequences. Personally, I'm absolutely thrilled about the markets crashing and people being unable to afford their mortgages, as it means very soon you'll be able to grab a great discount and take advantage of people's greed. nOtHinG iS sAfEr tHaN bRiCk aNd mOrTaR
Yeah, right, dream on… We are one of those couples on £100k+ household income. I’m not sure if you realise it, but that’s more than £6000 in the bank every month. Yes, my £1200 mortgage will go up by £4-500, but it will still be extremely affordable and it will still be cheaper than renting. Did you ever do the maths?
Interest rates are merely aligning to Historical averages ..those who assumed 0.5 to 1 % interest rates where the norm are going to get a wake up call Call
Truss may not have been right, but at least she was doing something, and had a plan! Hunt is doing nothing that will encourage growth, and clearly does not know what he is doing. If you raise taxes, make it difficult to start businesses etc, then you will stifle growth, in addition with the Ir35 repeal, you will force people and business abroad, and that is literally what I am seeing every day. Higher taxes do not equal higher revenue, and it certainly won't encourage growth. Truss at least knew this, although her implementation was a disaster! We are in for a rough ride over the next few years.
Perhaps borrowing vast amounts of money for covid. Perhaps bank of England not raising rates for two years. Perhaps because the government is still borrowing money.
So the Conservative government printed money to the value of 40% of UK GDP, funded 'help to buy' schemes and froze stamp duty and house inflation bounced.... whats to get ? UK Propery is 20-30 % inflated over real value.
Because the ruling class engineered inflation by printing vast sums of money and creating shortages via supply chain issues. This is not organic inflation.
Its quite simple math, if you increase mortgage rates, then mortgages get dearer which means, more risk of repossessions, adding to homeless total which currently stands just below 300,000 out on the streets british people being made homeless, whilst serco now buys up 4 bedroomed homes., puts illegal migrants in them, paying all bills, council tax, utilities gas electric. Oil, plus water bills and sewage. Plus giving illegal migrants mobile phones. Plus contracts all paid for plus benefits plus free food delivered.. Lus free doctors on call and dentist also cost of interpreters. I am sure your children get all that too.. The private rented sector also is hit, by higher mortgage interest rates, they increase rent which in turn causes evictions of young families babies children., so we'll done rishi and Jeremy hunt your polices are wrong , still time to vote REFORM UK party soon. Get tories and labour out,.
Answer: because politicians squandered huge amounts of money on the plandemic, Ukraine, illegal migrants etc. And need us to re-finance the economy through high prices, high interest rates and high interest rates
because we are three trillion in debt and we must insure foreighn lenders will continue to accept our money and lend us more, if not the pound will simply collapse and you will need a bucket full for a pint
What might happen to house prices next in the UK ? th-cam.com/video/TC3hG-hm5FA/w-d-xo.html
Great video as always! Questions: Can, below inflation, pay increases drive up inflation? And, if wages are driving up inflation, is it public or private sector pay increases that are creating the pressure?
It is gone, we lived through the zenith of our time.
These bourgeoisie individuals in tandem with the corrupt govt. will take down this country like what happened to Rome. My condolences to anyone approaching retirement, you may have concerns over whether your pension pot will stretch to cover the rising cost of living, bad regulatory policies, bad energy policies and insane fiscal policies
I'm 54 and my hubby and I are VERY worried about our future, gas and food prices rising daily. We have had our savings dwindle with the cost of living into the stratosphere, we are finding it impossible to replace it. We can get by, but cant seem to get ahead. My condolences to anyone retiring in this crisis, 30years nonstop just for a crooked system to take all you worked for
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Government policy has thrown the future under the bus for decades. The day of judgment is near.
There seems to be a mismatch between the base rate and the rate savers receive. The banks have made £4.5 billion from this so far.
The banks are recapitalising after earning little from the low borrowing/lending costs in recent years.
On line savings accounts are so better than High Street Banks with their huge overheads. Banks are a business with shareholders, not a charity.
Change your bank, there are saving account deals paying over 5% available
Banks use your money as a loan. So they pay you their rate not what the boe pays
Invest in bonds directly yourself.
Zero interest rates for 13 years at the expense of savers allowed house prices to rise unchecked and encouraged desperate people to over extend their borrowings. Since 2007 BoE , Government's of all hues and borrowers are responsible.
ok
My Dad in 1957 - you can borrow 2 x salary with a 10% deposit.
Me in 2005 just trying to find a new mortgage deal, not even move house - you can borrow 6 x salary, buy a large house, a new car, have a fancy holiday or two. Please have as much money as you can take away in a wheelbarrow.
Add to that the BoE printing money and de-basing our currency has led us to being in what's known as - deep shite.
sums it up well
That was done in Ireland up to 2008 and it ended badly for a lot of "rich" people....
The UK mortgage crisis is hardly understandable seen from France. Here most mortgages are fixed rate. Besides the borrowing capacity of individuals is determined by monthly income , not by the supposed value of your property. Hence house prices do not have the obsessional dimension they have in the UK.
Borrowing capacity here is based on monthly income. The problems are not singular, it is a compound of 30 years of lack of building social housing, stagflating wage growth, and the past decades of record low interest rates. On top of an economically uneducated nation.
Agreed. Decoupling mortgages from monthly income was the beginning of the UK housing crisis.
*14 YEARS LIVING IN THE EU* not one single person has started a conversation about house prices with me
Its all people talk about in the UK
@@piccalillipit9211because the UK has a horrible voting system and gullible voters resulting in a hyper capitalist society which doesn’t take kindly to increasing housing supply, decent rental housing etc.
@@roboldx9171except mortgages were NEVER decoupled from your income. It is very much based on affordability, house values are secondary to the process.
House prices are ridiculous and have to crash anything less is kicking the can down the road for yet another decade.
Given the acute shortage of housing in the UK which will not improve anytime soon, house prices will remain high.
Definitely !
2 words: Andrew Bailey. When you appoint a career incompenent, you will get incompetent policy. The entire MPC aren't fit for purpose. I fail to see how the BoE can retain its independence after this fiasco. The place is infested with groupthink and needs a complete overhaul.
This!
2 words, 1 cunt 😂
Hive mentality in there. Squirming around like slow worms made of expired 1 pound coins. They need melting, the lot of them.
Arm chair economist
@@g0801215 armchair
*14 YEARS LIVING IN THE EU* not one single person has started a conversation about house prices with me
Its all people talk about in the UK
Well, especially in Eastern Europe it's more common to own than not to own your home and maybe sometimes 2-3 other properties. Rental income isn't a wet dream unless you're in a big city and the infrastructure, maybe old or poorly maintained is still sufficient to support the population
Because only house prices keep the UK economy going 😂
@@boandonoff4026 Communism provided socialist policies that actually did good for people and welfare. As a Bulgarian I've noticed it and also the class divide in Britain plus the high crime rates. You'd never be homeless in Eastern European, but you will likely be poor, miss educational opportunities(as EA now is practically colonised by the West and within it's sphere of influence) or be unemployed or working something that is way below your qualification level. This is not the case in The UK although it may change if the employment market dips.
@@bangdobrich Well my 14 years have been in Bulgaria - the country has changed beyond all recognition and many of the people I now have returned from the UK to Bulgaria as they can now have a better life here.
At the same time quality of life in the Uk is declining very rapidly. In the next 5 to 10 years quality of life here will surpass the UK according to the statistics.
And YES one of the big factors is the availability of low cost housing. I live in a 65m2 apartment on the edge of the sea and it costs me £150 a month.
@@bangdobrich I am also a Bulgarian, living in the UK for the past 6 years at what I call a semi-skilled job. I don't think the quality of education we have in Bulgaria is poor, quite opposite - from what I see it's much poorer in the UK. I agree that people tend to be poorer in Bulgaria or the unemployment will be higher, however this changes with Business investments. I do plan to return to Bulgaria at some point - because the lifestyle is so much better than what the middle class in the UK get, however the financial opportunities in the UK are still far superior.
There is a 70 page document by BOE which is suppressed. Suggests that the long term effect of QE is not good.
8:50 it's not that buyers KNOW they can ask for a discount, they HAVE to ask for a discount, buyers have less purchasing power with higher interest rates.
The rising cost of the mortgage means that buyers have to borrow less to make the purchase to begin with, as far as the buyer is concerned, they're not the immediate benefactor. The seller is the one losing out, but they've only lost out if they're receiving less than what they themselves paid to gain the home in the first place including mortgages, solicitor's fees etc.
I think many people are economically ignorant and don’t understand what is coming down the track. To imagine people have hundreds of pounds of spare cash to pay an ever increasing mortgage bill is ludicrous.
I had so many conversations with people n line that went "at 0% base rate it is 100% guaranteed the rate will go up, have you considered this?" the reply was usually abuse.
They do, that’s how they’ve been assessed when they took out the mortgage. It won’t be pretty, but most will manage somehow.
@@chrisl.9750 Agreed, it's a question of priorities. From a personal perspective keeping a roof my head is my top priority, nice holidays, the latest I phone and a new car I can live without.
@@dc6807 *OK BOOMER*
@@dc6807 What you mean buy a house for 2 X your salary and have your entire family live on one salary YES we should all handle our money like boomers boomer.
Its all that avocado toast the young ones buy isn't it, the evil little f-ukers, dont know they are born having a house at 14 X your annual salary...!!!
Great video, love how you concisely explain everything
This is catastrophic. People cannot find additional payments of up to £1000. People will have to reassess their lives as to whether they can afford a mortgage. Thanks for pointing out the role of QE which basically kept asset prices up.
Relax. Banks will refinance with 40 years mortgages. This is not that big an issue.
@@kth6736that's a pretty big issue
@@kth6736 wonder I’f theyll
Do 60 years? Some of the prices in London for houses are a joke.
@@millwallfan06 those houses are not meant for mortgage buyers. They are for all cash Investors.
@@aHumanCookiee how?
I studied economics as part of my degree at uni. I have always had a view about what the Tories should be doing (within the constraints of their view of the world) and what Blair/Brown should have done (within the constraints of their view of the world).
But now I am stuck for policies to recommend.
I really cant think what the Tories should be doing to make the economy better, nor what Labour should do to make the economy better.
The economy needs to grow, but any increased spending by Tories or Labour in my opinion will just add to our debt and make matters worse.
Similarly the public sector has been cut so much I don't think it can be safely cut any more.
All we can do is wait for inflation to fall, which might not happen for several months or might not even happen enough in the next two years.
I think the UK has hit its credit card limit and can no longer afford to pay the minimum payments just as its income is falling (in real terms) whilst the bank is putting up the interest rate.
In short the UK can no longer afford to pay ofr the standard of living we have come to expect - and no one wants to hear that and no politician will say so.
Economics Help, do you have any suggestions for policies to get the UK out of this mess? I'd love to see a video on your suggestions / the options open to government to pull us out of this nose dive that we are in.
Remember that government receipts are actually artificially high because of all the buy to let owners who have been selling houses and paying vast amounts of capital gain tax - and surely these receipts cant keep coming in for more than a few years.
There isn't actually any evidence to suggest that large numbers of landlords are selling. There are statistics such as the English Housing Survey, which shows what tenure households have (owner occupiers, private rented sector, social housing) and of course also data on the number of BTL mortgages. Neither indicates a large number of sales. Just because lots of people are stating that lots of landlords are selling doesn't mean it is true, especially if they never reference official statistics. Lots of these people are not entirely unbiased (it is generally landlords trade bodies, etc)
It makes sense to me, economically, to lend exponentially until everyone is loaded. Once everyone is loaded with debt, the spending stops.
Time to crash it. Push rates up. No longer afford the stuff they’ve bought. 2 years people lose the assets.
5 years later, cycle repeats.
I didn’t do economics, but I see too many people saying it’s not fair what’s happening. It’s not meant to be
I actually think Liz Truss idea of growth would have worked. The issue is also the fact that the UK generally imports more than it exports ...UK needs to get back to producing goods. There has been too much focus on services
Bond yields didn't soar because of the Truss budget higher spending. The yields are high now but we don't see the same media headlines.
The reason the bond yields soared was because it was a vigilante hunt on the Pound coming two weeks after the Yen was hit. Investors knew that the mix of political instability and misdirection of the media coupled with the fact that the public pension funds were leveraged to the hilt (due to low interest rates having them search for return with more exotic instruments) would make an easy up-down trade. The yields shot up because pension funds got margin called and starting dumping assets which were predominantly gilts. The BoE then stepped in and paid over the odds for gilts quelling the issue. The BoE then put in place an emergency funding measure to stop this from happening. But they had caused the mess in the first place!
Truss's budget wasn't disastrous. Bold yes but it focussed on building business, helping micro and small businesses and trying to make the UK more self-sufficient (Net Zero stopping drilling being one such nonsense). As for the increased deficit, after Hunt did his budget suddenly another £50B in deficit was discovered. It was all a ploy to stop the return of small entrepreneurship in the UK. And they hadn't even started because other tax reforms were planned.
Exactly. They used the 5% 2 year gilt yield as an excuse to get shot of Truss but that was not her fault and came from global FX factors and pressure on sterling.
2 year gilts are now in excess of the Truss days yet nobody is having a go at getting rid of Rishi.
Oh well looks like rates will keep going up to 8% by December but hey, at least we're not stuck on an OceanGate Titan next to the Titanic with no way to escape.
A very well put together analysis.
This Inflation isn't demand led, it's supply, and prices of staples that are going up. Not salaries or luxury goods. This needs government policy, not just the BOE. What will people do, not eat, freeze? Banks are raking it in.
It's always a combination of Fiscal ( Government) and Monetary (B of E) policy.
@@jjefferyworboys8138 Not in this case, no. 10 years of QE can't suddenly result in higher inflation in 2022 even though before that inflation remained low.
Your channel is very good and useful I've been learning economics and found it very interesting because economics it really what makes the world work
The problem is businesses relying on the minimum wage. The minimum wage has created a race to the bottom which lowers productivity.
Just found this channel. Thank you!
Really appreciate your informative analysis
House prices are vastly inflated. Therefore many people had to take out very large mortgages which they could afford as interest rates were low. They are having trouble paying the large mortgage at low interest rates. They have no margin to pay more. Because the mortgage was so large any slight change in interest rate is catastrophic.
@@robertjones2053Can I ask where I can find these figures please Robert?
@@robertjones2053 Cheers Robert.
Mortgages should be limited to 3.5 times someone’s salary and 90% LTV, and add 5% to buy to let mortgage interest rates. Remove those barriers and the housing market runs away. There are still the same number of houses so the prices stabilise at sensible prices. The only people to lose out are the banks…. I wonder why the checks and balances aren’t there! We learnt nothing from the 2008 crash ☹️🤑🤑🤑
Why are savers not getting better interest
They are, just move to better saving accounts. My savings account is 5 percent right now.
@@MinkieWinkle who is it with?
@@user-zz9gn2dc3l barcleys, they have a rainy day savers account. 5 percent on everything up to 5000.
Add and withdraw as much as you want.
I love the account
@MinkieWinkle That's really good, haven't seen that rate for years. What savings account is that?
@@daftdigital barcleys, rainy day saver.
Rents sky high too
Quantitative easing IS inflation, if you go by the old definition of inflation. We are feeling its effects right now.
So going back to what is a normal situation is now deemed a crisis?
I know it is not a popular posting to say this, but interest is at about its long term normal level. So all those that now demand "support" because they can no longer pay the mortgage have just been living above their station the last decade.
Don't worry Blackstone is ready to snap up the repossessions while at the same time not paying their loans .😂
Some Tory foreign donors and vulture capitalists waiting in the wings and if they get it wrong and get too greedy we bail them out.
Yep you will own nothing and be happy. Paid mine off - really not easy.
Did you mean black rock?
@@scazz007 no Blackrock is a separate duescam
There can be no mortgage stability with out long term fixed mortgages, I am an American and a Realtor for over 20 plus years in the U.S. any home buyer can get a 30 year fixed interest rate government backed, or commercial mortgage with as little as 3.5% down payment, and can refinance that mortgage if the interest rates go down. It is madness to buy a long term investment like a house using short term money, it is the exact opposite of stability, as you are always at the mercy of the uncontrollable markets, and one step from disaster
Clearly People Over Leveraged but the question is can you blame them?
You go to a Broker or Mortgage Calculator and it says you can afford a £400,000 house then the first thing you do is filter that amount into Rightmove and off you go.
Interestingly House prices are still high with sellers refusing to lower price to reasonable levels or just flat not selling to ride out the storm.
People measure their wealth on the value of their house, the very house that the bank owns. Cognitive dissonance sets in. In reality very high house prices are just another form of punishing inflation for the average working person wanting to buy a house. The 'market' goes to great lengths to keep the bubble going. At some point the sht hits the fan.
@@vihuelamig Yeah a house is only worth what someone is willing to pay for it. You may think your house is worth half a Million but that doesn’t mean it’s true if you actually need to sell it. Usually Unemployment does the work of reducing prices which is what is so different about this period as people still have jobs
We need a very public crash if nothing else to re adjust people’s expectation in line with the new Economic reality in this country
Great video, but why the raise of interest rate doesn't lead to house prices correction as most organisation predicted?
Supply and demand, there is an acute shortage of housing in the UK. You have 2 choices, rent or buy !
As we saw previously crashes people imagine that if their property has negative equity. They can just hand the keys back to the mortgage company and walk away. Not realising the loss in value will have be paid for by them.
Unless you've got a lifetime mortgage with a No negative equity guarantee, then you'll still owe the bank the remaining mortgage debt if they can't sell it and repy the total balance. Its not just a case of handing the keys back and walking away, one would likely end up filing for bankruptcy.
I have read that the BOE have said that the U.K. has to go into recession because of high inflation.
We are doomed!☹️
Recession isn't bad, why the obsession on ever increasing growth ? How much stuff do you need !
@jjefferyworboys8138 I thought recessions are meant to be normal?
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Great video, as always!😊
One thing - it’s quantitative, not “quantitave”
Quantitatitive
Is it now not clear that this was nothing to do with Liz trust? and everything to do with the Bank of England ?
As someone that also recently took out a tracker mortgage (in NL) I got a laugh from your hopeful comment
Very likely to be tax increases after the election too, irrespective of the party elected. There is no ongoing investment in British industry post Brexit, post Brexit customs infrastructure needs to be built and the NHS need a lot of funding. The party elected will just spread the pain differently.
That's actually not true, we have a record number of overseas entities investing into new financial products through the city. We also have over 90 trade deals which is more than the 76 the EU has.
I don't know where you get your information from but we are still the 6th largest economy in the World at over £2.2Tpa and a GDP of 4.1% which currently puts us ahead of many EU countries.
I think the trouble is a lot of people don't know what we do, but I personally work with several multinational companies setting up funds to invest in the UK, predominantly financing development of commercial property and infrastructure.
So I don't know why you think companies aren't investing here?
@@user-gz6tx6yp3v The UK has suffered a loss of business investment since the 2016 Brexit referendum worth £29bn, or £1,000 a household, according to a study by the Bank of England. Jonathan Haskel, an external member of the Bank’s nine-strong monetary policy committee that sets UK interest rates, said private sector investment “stopped in its tracks” in the years following the decision to quit the EU. (Guardian 13.3.23) and in addition around GBP 40bn a year in lost tax revenues (Source: London Economic 21.12.22).
@@user-gz6tx6yp3v We have only 4 post Brexit trade deals of any consequence all of which are poor to worthless. Japan where trade has since declined (Goods -4.9%, Services -2%, Source: Guardian 26.11.22), Australia & New Zealand which have no net benefit to the UK as admitted in Parliament (Eustace), and the EU of course which was largely in their favour (Sunak). All other deals are rollover deals negotiated by the EU while we were members. The CPTPP is another almost worthless deal where we already had trade deals with 7 of the 11 members. It will barely show a positive benefit (0.08% to GDP best case) to the UK after 15 years. (Source: CSIS 31.3.23). So it is all ´´Window dressing´´.
@@chriswills9437 None of that is true.
Great video!
Mortgage Rate was 13% when I bought my first house in 1982 and was 17% in 1980.
We were only allowed to borrow twice the main wage earners salary plus once the second income, this ensured that the mortgage payments could be repaid nd were affordable.
The problem nowadays, easy money and self certification and greed have taken over.
People look at houses as property investment but in reality it is your home.
The easy money has pushed up house prices compared with a multiple of your salary.
So all homeowners under the age of say 50 have not experienced double digit mortgage rates and think that low interest rates are normal.
The problem now is greed, borrowing money is easy, but people forget it has to be paid back and borrowers do not allow a safety margin if rates go up!
Now we have a raft of people complaining its the government's fault and they should bail them out, when in effect its a global problem.
Governments have never bailed out homeowners, whose houses have doubled in value every 10years on average.
I can see house prices drop anything between 20-30% as demand falls away, that is long overdue!
If you borrow the money then you need to accept the risk. Over a 25 year period of a mortgage payment, the chance of interest rates staying low is very small. The whole problem with our country is that its economy is based on house prices and the assumption that they will rise indefinitely. If you think paying a rising mortgage is bad, spare a thought for the people that are fleeced by landlords through buy to let. Build more houses FFS and tax the wealth of the top 1%.
25 to 30 year house mortgages at fixed interest should be available generally in the UK, as in the US and other parts of Europe. This cuts out the banks profiteering on short-term interest deals and gives borrowers stability.
if inflation is caused by elevated prices on essential commodities like food shouldn't the goal be to bring down the price of food, rather than increase interest rates till people can no longer afford to buy the food? People kinda need to buy food
Early 1990s I was paying 15.4% variable rate - much higher to go folks.
Yikes! This might be the case. I'd suggest that people should not buy at the moment. Save your money. Buy when the prices have gone down 30-50%. Why would anyone take up hundreds of thousands of pounds worth of DEBT with volatile interest rates.
The scale of this level of quantitative easing has never been seen before...
How about Venezuelan, hungary, Argentina, weinmar republic, Zimbabwe etc. It never ends well
Move in with Rishi Zanuk he is a billionaire with buckets of Moolah with Liz truss performing Lady Godiva in the background !
Didnt understand why Truss went. She was clear on what she was going to do and needed at least 6 months to try this out. The BoE has only 200 billion in gold, where does the rest come from? Printing money? In the 80s our mortgage interest was c 15-20%. Didnt over stretch.
Good explanation thanks
No mortgage crisis here - i fully paid up mine back in March. Did it in 12 years whilst the rates were low - I sacrificed many luxeries, did without and literally suffered a very low standard of living for 12 years in order to make the overpayments.
Well done, I did the same. It's simply a question of priorities a lesson others will find painful to learn.
@@jjefferyworboys8138 some people's priorities are fancy holidays, flash cars, designer clothes - not me, back in 2010 my priority was to be totally debt free & fully insulated from what we are seeing now.
You cant compare your mortgage for the house of 1-3 annual salary and houses these days which are worth 7-10 annual salaries.
@@TruckingBritain my mortgage was just over £101,000 in 2010. I'm single owner, so it's not been a walk in the park, it has taken major sacrifices.
@@ep1929 Yea, try doing that with a 400K mortgage - people with recent mortgages are really over a barrel - you just cant save up that kind of money with the current cost of living...
Your critique of Truss' budget is that tax cuts would not increase tax revenues, but there are many examples of this being proven in the past; and conversely that tax rises reduce tax revenues. Indeed, with high tax rates now, we are seeing more earlier retirements or reducing hours causing a labour shortage as there is no appeal to work (or indeed work harder for 35% of the income). There is no longer an incentive for entrepreneurs and wealth creators to make an effort, at least not in the UK. Economics can never be predicted as is evidenced by supposed experts every day.
interest rates could go up as level of inflation.
In theory, as long the salarys keep up wich is not the case.
The BOE could have easily already done so, but that would have been incredibly damaging to the economy.
Good video, but I strongly disagree with one statement: "Homeowners have been rational in taking out ever bigger mortgages, despite very high house prices, because cost of borrowing was so cheap" -- there is nothing rational in this. There is nothing rational in just blindly assuming that interest rates would stay at the record low level for the next 20-30 years, there was no good reason to think that they would stay on this level for more than 5 years. Loads of people maxed out their mortgages as they've seen "cheap money" and nothing else, very few considered what will happen when interest rates will go back to the previous (average) levels. I guess they have to think about it now...
Funny how Japan has 0% interest rates since 2016 and dosnt have a big inflationary problem. If they raised rates they’d have inflationary pressures due to increasing costs for business. Same can be applied to Switzerland who have a 1% rate. This is gross mismanagement by govt and fuelled by Bank of England into a self perpetuating cycle.
Raising rates increases costs which pushes up prices which in the use of the term currently is inflationary.
Govt dosnt borrow, bonds are just interest bearing cash to take liquidity out of the market. Like putting cas reserves into a savings account.
Thanks, Tejvan - if the transition mechanism of interest rates take 18 month to have any real impact on the economy, I can't see how these small, incremental rate rises are going to have any real impact on the current core inflation pressures; if the Central Bank BofE has reacted so slowly to the affects of core inflation, they must now anticipate the current inflation levels, accounting for time lags, are going to persist well into 2025 which, with their base rate hikes, will lead to a technical recession. The MPC has been woeful in it's management of contractionary monetary policy and a misunderstanding of the inflationary effects of the economic headwinds the UK faced post Covid. Can see it conflicting massively with other macro objectives - wrecks any attempt by the Government to save the election (or attempt at growth) with any tax cuts.
Who actually decides UK financial policy? the world money markets!
If you’re “growing wealth but not income” aren’t you just debasing the denominator? The house that was worth £150k is now worth £250k: it’s still the same house, you’ve just devalued the money.
There's no mention whatsoever in the media of the (in some cases huge) capital gain that many mortgage holders will have made since taking out their mortgages, no doubt because to mention the capital gain would undermine the lurid portrayal of the situation. If you can't afford your mortgage repayments, sell up, cash in on your capital gain and rent, freeing up stock for prospective owner-occupiers and making things easier for those who have been trapped in rent by dampening overinflated prices, which will eventually help you to get back into owning yourself. It's win-win for the vast majority.
My Nationwide mortgage interest rate was 17% in 1977...and inflation was about the same. Interest rates have been far too low for years...so the 'Buy to let' people have been loving it. Don't forget house prices keep the UK economy going ! 😅
Ahh yes 1977 that time famed for economic stability… oh wait
@@cybergornstartrooper2157 yes and your house costed 1-2 your annual salary, please dont write again thanks
Yes, but the extent of ‘buy to let’ is also a dangerous sentiment indicator, as it will be potentially the unwinding of property leverage feeding upon itself that will lead to a property price deflationary spiral?
Smoke and mirrors! Great analysis as always.
This should be on TV and in the papers, instead we have tripe.
Butchers Tripe. My golden retriever used to love eating that stuff.
Where are all the house prices Cooks?
Raising interests is a tool used to curb inflation by reducing consumer demand. Current inflation is caused by problems of *supply* (especially food production and imports after BREXIT). Reducing the amount people have to spend on scarcer (therefore more expensive) resources seems perverse.
Government borrowing is not the same as credit card or personal debt. Insurance companies buy government debt (gilts) in order to have income to pay their pensioners. When QE came along these insurance companies could not buy gilts and the rates were low, so they had to increase risk. Guess what they bought? Shares, property and private equity with the result that all of these became overheated.
So who won from QE, well if you had a share portfolio you could sell, or a second property or owned your own company which PE wanted to buy you made out like a bandit. Hence the huge increase in wealth inequality.
6% borrowing rate was the was the norm about 8 years ago. Wasn't that long ago it spiked to 15% now that was a killer, it was only a short time at that rate, that caused panic. I don't why the bank of England, didn't put the breaks on a few years ago., instead of letting people borrow ridiculous amounts of money, and lenders lending money they never held as securities, actually borrowing money the give as loans. Surely is a recipe for the financial can being kicked down the road.
Spurring economic activity post-2008 (2:42) with low interest rates was, in hindsight, seriously misguided. The recent IPPR report shows that UK business investment was 27th (out of 30 OECD countries) in the past decades, damaging competitiveness and creating skills shortages that a strong HE sector and immigration can only make up so much for, so naturally most of the cheap credit went into consumption and existing assets, rather than improving and increasing our capital stock and productive potential.
Taking on big mortgages to buy expensive houses isn't "reckless borrowing" - it's absolutely unavoidable. Everyone needs a home and the rental market in many areas is even more expensive if you can find anywhere at all. Most people are not 'choosing' to go into debt, the market is compelling us into debt. This is why simply raising base rates and refusing wage rises will not cure this crisis. Far wider and more drastic policy changes are needed and no political party so far has the guts to even discuss them.
It's the ever rising price of housing that is causing the problems with the economy.
Low interest rates and people buying what they can't afford.
The constant borrowing against the property prices that force property prices to increase and so on, all at low interest rates.
Either they fix the low interest rates and increase them or we are heading for a much bigger crash where everyone will lose, you will need a wheel barrow full of money to buy a loaf of bread.
People buying what they can't afford, paying with money they don't have.
I got no sympathy for them, sell those houses while you can get a decent return prices need to go down.
They say there is a housing shortage, no there is no housing shortage, investors buy up all the houses and sit on them waiting to make money off them long term, thus forcing prices up, and causing a crash causing prices to go up.
How can a house bought 10 years ago be worth more than double without something collapsing.
Tax cuts have historically led to more money being spent and usually lead to more gov revenue. Some cuts in gov waste could offset that too. Government long-term borrowing, with solid repayment schedules, lowering interest rates and attempting to boost productivity is worth it to aid the people as a last resort. Just not to excessive levels.
Ending the war and lowering spending on free cash would help too especially the overreaction to the pandemic. But that's already happened...
Now happy in Spain 🇪🇸 , yes we adored "We are a grandmother " we bought to renovate the cheapest house we could find 13 year mortgage with life insurance with the Pru , we managed fairly well even when the int rates went to 16% , well folks you can't beat the Tories for F ing things up .Watch this space for repossessions that nobody can afford!
35% drop would be fantastic let’s get those quality house under 7 figures 👍
It's so sad. Why do we need the Bank of England? Why don't we print our own money? Why do we need the same old parties to tell us what we can and not do? People this will be your last chance!
'Why do we need the Bank of England?' : Whoever controls money controls the world. - Henry Kissinger... That's all you need to know!
@@aabb6677 you mean well but you have a long way to go. follow the yellow brick road.
@@m.a.r.s.6632 Thanks you my Guru...
food prices are going down now and in July energy costs are going to drop.
I remember the days when the mortgage rate was 15%+.
Indeed. However the income:housing expenditure ratio was much lower, due to absurdly high house prices we are now paying a far greater proportion of monthly income on housing coats, even at 0.5 - 1% interest rates.
Boom! We just had the increase to 5% although expected was 4.75
The UK plays at encouragement of home-ownership. If it was serious about it, it would do the same as other providers in the US and parts of Europe and give fixed-interest 30 year loans. What it currently does is encourage profiteering by banks on short-term mortgage deals, crippling home owners with random, rapid and unaffordable interest rate increases. Get it sorted, UK!
Can’t help feeling if the UK was in the euro and EU things would be better. The UK is reverting back to seventies style stagflation and economic volatility but worse !
W⚓!
You need to see late 70s when interest rates went from 7 to 17% in a couple of years and from around 8% to around 15% in the late 80s
My dad got hammered with the 70s and me with the 80s
The real point is why interest rates have been at near 0% for 15 years.
I often wonder, who on earth invented the complicated world of economics. P. S. I think US inflation is lower at 4% because they don't calculate it the way we do in UK, Australia, NZ...?
Fixed mortage rates are limited to make bankers rich. That money was created the day you took out the loan not 2 or 5 years later.... And that isn't how other european countries do it.... Fixed mortage rates usually last for the duration of the mortage.
This is not a but of the system but a feature. Ask all the politicians who work in favour of the banks instead of looking after their constituents. And central banks are legalised theft of income.
this analysis 1 fundamental error. Accommodation problem. Growing population, immigration and shortage of the space close to work, with rental increase --> push buy a house instead rent. Here in Australia, rates up, hose prices also up. WHY? Very serious shortage of house. Accommodation problem is bigger than economical problem.
Unless heavy tax on second dwelling, if the accommodation problem continue, prices will increase imho.
The increases are to pay for the governments money printing.
No to get inflation rates down. Simple as that.
@@Christian-uj1mq In your dreams.
All it will do is hurt those with mortgages and they have not caused the inflation which BTW is way above the governments indicated rate. Interest rates are the tool of choice to hit the poor and middle class.
You play silly games, and you win silly prizes. If you thought you deserved a lovely house in a great neighbourhood that you can barely afford on good times, its your own fault if you're unable to repay it when the rates go back to its normal pre 2008 levels. If a household earns 100k a year, the banks are willing to lend you up to 450k, does it mean u should aim for a house worth that much? Nope, instead you could have settled for a house around 250-300k, and even if you were one of those unfortunate ones who were on a 2-year fix which went from 2-3% to 6%, you'd still be alright, since you're not overleveraged.
First-time buyers scheme was a big culprit in increased prices for new builds, as vendors simply bumped the prices by 20%, since the govt was giving you 20% of the property's value with 0 interest for first five years.
Take ownership of your actions and deal with the consequences. Personally, I'm absolutely thrilled about the markets crashing and people being unable to afford their mortgages, as it means very soon you'll be able to grab a great discount and take advantage of people's greed.
nOtHinG iS sAfEr tHaN bRiCk aNd mOrTaR
Yeah, right, dream on…
We are one of those couples on £100k+ household income. I’m not sure if you realise it, but that’s more than £6000 in the bank every month.
Yes, my £1200 mortgage will go up by £4-500, but it will still be extremely affordable and it will still be cheaper than renting.
Did you ever do the maths?
Interest rates are merely aligning to Historical averages ..those who assumed 0.5 to 1 % interest rates where the norm are going to get a wake up call
Call
QE is a con
Truss may not have been right, but at least she was doing something, and had a plan!
Hunt is doing nothing that will encourage growth, and clearly does not know what he is doing. If you raise taxes, make it difficult to start businesses etc, then you will stifle growth, in addition with the Ir35 repeal, you will force people and business abroad, and that is literally what I am seeing every day.
Higher taxes do not equal higher revenue, and it certainly won't encourage growth. Truss at least knew this, although her implementation was a disaster!
We are in for a rough ride over the next few years.
Don’t talk about house prices falling, so many in the UK just don’t believe it. Some even believe the supply and demand bullshit.
Perhaps borrowing vast amounts of money for covid. Perhaps bank of England not raising rates for two years. Perhaps because the government is still borrowing money.
i dont work, so this doesnt affect me.
So the Conservative government printed money to the value of 40% of UK GDP, funded 'help to buy' schemes and froze stamp duty and house inflation bounced.... whats to get ? UK Propery is 20-30 % inflated over real value.
Because the ruling class engineered inflation by printing vast sums of money and creating shortages via supply chain issues. This is not organic inflation.
Its quite simple math, if you increase mortgage rates, then mortgages get dearer which means, more risk of repossessions, adding to homeless total which currently stands just below 300,000 out on the streets british people being made homeless, whilst serco now buys up 4 bedroomed homes., puts illegal migrants in them, paying all bills, council tax, utilities gas electric. Oil, plus water bills and sewage. Plus giving illegal migrants mobile phones. Plus contracts all paid for plus benefits plus free food delivered.. Lus free doctors on call and dentist also cost of interpreters. I am sure your children get all that too.. The private rented sector also is hit, by higher mortgage interest rates, they increase rent which in turn causes evictions of young families babies children., so we'll done rishi and Jeremy hunt your polices are wrong , still time to vote REFORM UK party soon. Get tories and labour out,.
by design dear boy by design
Answer: because politicians squandered huge amounts of money on the plandemic, Ukraine, illegal migrants etc. And need us to re-finance the economy through high prices, high interest rates and high interest rates
Andrew Bailey is well and truely out of his depth.
because we are three trillion in debt and we must insure foreighn lenders will continue to accept our money and lend us more, if not the pound will simply collapse and you will need a bucket full for a pint
Shame really glad I have always been a social housing tenant at a sensible rent. Lol
I predict a HPC of 50%
Hewlett Packard Computers?
I can feel a MASSIVE crash within the next 2 to 3 years
Banks like to make money out of your misery....thats why.
Liz Truss needs to be jailed