Now for some fun and games and a test of personal resilience.

Before you read on let me say that I think all banks are crooks and fair game. Although the rate decision is one for the Bank of England the high street banks have been throwing credit at you all for years and as we all know pigs will always gobble up strAwbewrries---now its pay back time, and that this level, the ghost of negative equity is already in the sheet house.

I just sold my house in Manchester and the buyers were already signing themselves into a corner at the old rate. Fortunately I had more than enough to buy in Deven and have a comfortable retirement. However for those with cash this good be a great time.


Bank turns rates screw with 0.25% hike

5 July 2007, 11:10am

Homeowners were facing mortgage misery today after the Bank of England decided to raise interest rates by a quarter point to 5.75%.


Rates are now at a six-year high having risen from 4.5% just 12 months ago, adding hundreds of pounds to household costs.

Millions of debt-ridden households already struggling to deal with higher mortgage repayments will be hit by the latest hike.


Homeowners with a typical 200,000 mortgage will pay an extra 33 a month in repayments, having already seen monthly payments rise by 127.57 since August.

But the screw may turn tighter yet. Nearly half of City economists expect interest rates to hit 6% by the end of the year.

A survey found that 30 out of 70 economists see rates climbing to 6% in the coming months as the Bank of England battles to bring inflation under control.

Further increases will be a major blow to Gordon Brown so early in his Premiership. The former Chancellor has spent much of the past 10 years boasting about low inflation and low interest rates, but if rates do hit 6%, it will put them at the level New Labour inherited from the Conservatives when Tony Blair swept to power in 1997. It will also be a headache for new Chancellor Alistair Darling.

The latest rise comes as the borrowing binge in Britain bites. Households are already having to set aside a record slice of their incomes to pay off debts, according to accountancy giant PricewaterhouseCoopers.

The firm reckons 19% of disposable income is used to pay off debts - higher even than in 1990 when interest rates were at 15%, causing a meltdown in the housing market and plunging the economy into recession.

........

hmmmmm problems ahead, but the supply/demand theory will not go away giving tremendous support for house prices, restaurants are still full, people still buying wine to have with there meals, it is the low income families which will be hit, many more repossessions to come, except they aren't really a bargain anymore, as the amount of wealth in this country means parents are buying them on behalf of their offspring... What if inflation is under control and rates start dropping again in spring next year? how big are the inflationary pressures? shall i go out in Torquay tomorrow night?
these are all questions that need answering...

DOOMED...WE ARE ALL DOOMED, ONLY SUPER DAVE CAN SAVE US ALL, AHHHHHHHHHH!!!!!

Higher intrest rates will crush demand, with repossessions on the up and people selling for a smaller property to aviod losing their home.
Debt at an all time high driven by the banks practically giving money away, and relaxed their rules on borrowing.
9 times salary.
100% mortgage+
Intrest only ect...
Lets face facts, the party is over, and after any big party comes a massive hangover.

Every time there is an interest rate rise the doom and gloom merchants appear out of the woodwork all spouting the same old rubbish and still house prices rise.

Hav'nt you idiots even realised that house prices have risen since the last hike.

The party is not over.
I admit that a few guests will be the worse for drink and regretting that last G&T, but whilever there are new arrivals in the form of immigrants and young first timers and an increasingly large BTL (both professional and private) community, the drink will flow. Not as fast, but the conditions are not right for any sort of crash.
For that you need a populace that feels too poor to buy, not one where property ownership is a fundamental aspiration. You need a workforce in fear of their livelihood and lenders in fear of their own credit rating.
Enjoy the prosperity, for it is just an illusion anyway, and it will pass one day. Just not today.
I for one wish my house was suddenly worth a tenner, but thats another story.
Alan

The only idiots are those who think house prices are going to go up forever!
It doesn't stack up

i think we are a long way from doom and gloom, hell if you cant find the extra 25 a month that the average mortgage has gone up, dont buy a round of drinks this weekend down the pub.....:) Having just spent a night out in Mayfair which seemed like fantasy land to my behind the times homeland of Plymouth, i think i can comment that i dont know of any friends associates indeed poeple etc who are actually struggling to make payments as yet... doesn't mean there aren't just that the % is still small...

I think this will bite very deep. the last round of consumer spending figures indicated a substantial slow down, I think this hike will hurt a lot.

True housing prices are, although slowing, still on the up---but how long does it take to stop a super tanker?

Completely agree David.
As for the doom and gloom comment, the fact is that it isn't doom and gloom for those people who cant afford to buy a home, a healthy correction would sort out the greedy boys and those who have stupidly over stretched themselves, and allow the average guy to get on the property ladder without selling his soul to the devil.

Its amazing Neil as I remember the negative equity of the late 80s and early 90s--seems people are impervious to being educated as to the follies of greed.

I trust the average responsible family struggling with kids and a mortgage are not hit this time.

Just as a note of interest;
since last year rates have risen by 1.25%. On a 200000 mortgage this equates to about 2500 per year in increased mortgage payments.
Unarguably, this is a heavy extra burden, but look at it in a little detail.
Firstly, many homeowners are on fixed rate deals, so they have seen no change.
Secondly, while rates have increased by this, average earnings have increased by about 1122 per person per year, so for working families and couples, on 5 X joint income (very difficult to get) they are about 20/month worse off than 12 months ago, if inflation is ignored.
It would be more realistic to say that a couple with average earnigns are likely to have a mortgage of about 150000 and they would be about 20/month better off than 12 months ago, if inflation is ignored!!!
Yes, 1st timers will struggle more and yes we will feel that we should not pay as much for a home, but they are still affordable for most.
Alan