If it doesn't hurt, it's not working
Interest rate rises affect people in different ways, if you have a variable or tracker mortgage, it will increase in a more or less direct proportion with the rate increase. For others, for example those that need an unsecured loan, a 25 base point rise can actually become 200 base points, by the time the rate has propagated throughout the lending system. Furthermore, many will simply not feel the increase, or it will reach them with a delayed effect, for example if renting or on a fixed mortage.
The BoE has decided to increase the rates very slowly to give them time to propagate through all the different levels, controlling the base rate is one of the few instruments they have to control inflation and a very blunt one for that matter, but the problem is, the task is getting increasingly difficult. Many institutions could have borrowed huge amounts of money when the rates where at historically low levels and for long periods of time, others could have borrowed and continue to borrow money in countries with low interest rates, and hedge against currency fluctuations. To make things worse there seems to be an unending supply of liquidity everywhere, and an increasing dependency on .
Part of the property ladder effect bases on the fact that house prices rise substantially faster than rate rises, and as everyone will tell you, this is because not enough houses are being built to cope with the population increase, or simply put, the law of Supply and Demand. Well, but there are many ways to control supply, properties can be sudivided further and further, people can move in together, delay marriage, stop having families, or even move out of the country. The inflow of people can and is also being tightened, recently many after coming back from holiday in europe have been told to return to their home countries for relatively minor breaches of immigration law, as Inland Revenue and Home Office systems have linked their systems, the law has also been retroactively hardened, quite handily setting a precedent. Once the rest of the EU opens their labor markets, there will be more options opens to the "new" EU citizens, many will also eventually return as the novelty fades off and the savings are enough to buy a house in the home country. Another often overlooked fact are the three years of residence in england required by many credit scoring agencies in order to approve loans and mortages.
Many, specially those that would like to see house prices back to reasonable levels, claim for drastic rate hikes for a relatively short period of time to cool the asset market, the reality is it does seem that rates will have to rise slowlier and for longer periods of time if a spillover effect from houses and other assets is to be avoided, even though in the long term it might hurt more.
... btw, i was mugged yesterday night by three guys when walking back home, needless to say, they took my wallet and beat the crap out of me. As a result, i have a nasty looking black eye and it feels like all the fingers in my left hand are broken.
Interest rate rises affect people in different ways, if you have a variable or tracker mortgage, it will increase in a more or less direct proportion with the rate increase. For others, for example those that need an unsecured loan, a 25 base point rise can actually become 200 base points, by the time the rate has propagated throughout the lending system. Furthermore, many will simply not feel the increase, or it will reach them with a delayed effect, for example if renting or on a fixed mortage.
The BoE has decided to increase the rates very slowly to give them time to propagate through all the different levels, controlling the base rate is one of the few instruments they have to control inflation and a very blunt one for that matter, but the problem is, the task is getting increasingly difficult. Many institutions could have borrowed huge amounts of money when the rates where at historically low levels and for long periods of time, others could have borrowed and continue to borrow money in countries with low interest rates, and hedge against currency fluctuations. To make things worse there seems to be an unending supply of liquidity everywhere, and an increasing dependency on .
Part of the property ladder effect bases on the fact that house prices rise substantially faster than rate rises, and as everyone will tell you, this is because not enough houses are being built to cope with the population increase, or simply put, the law of Supply and Demand. Well, but there are many ways to control supply, properties can be sudivided further and further, people can move in together, delay marriage, stop having families, or even move out of the country. The inflow of people can and is also being tightened, recently many after coming back from holiday in europe have been told to return to their home countries for relatively minor breaches of immigration law, as Inland Revenue and Home Office systems have linked their systems, the law has also been retroactively hardened, quite handily setting a precedent. Once the rest of the EU opens their labor markets, there will be more options opens to the "new" EU citizens, many will also eventually return as the novelty fades off and the savings are enough to buy a house in the home country. Another often overlooked fact are the three years of residence in england required by many credit scoring agencies in order to approve loans and mortages.
Many, specially those that would like to see house prices back to reasonable levels, claim for drastic rate hikes for a relatively short period of time to cool the asset market, the reality is it does seem that rates will have to rise slowlier and for longer periods of time if a spillover effect from houses and other assets is to be avoided, even though in the long term it might hurt more.
... btw, i was mugged yesterday night by three guys when walking back home, needless to say, they took my wallet and beat the crap out of me. As a result, i have a nasty looking black eye and it feels like all the fingers in my left hand are broken.
