大象传媒

A good article, but could you please tell me where I can go to get a job which pays 8% pay increases over 2 years? In my job and those of all my friends we're gratefull to get 2-3% increases, and thats if we get one at all.

Sorry Evan, I hate to be pedantic, but you've got the maths in this example wrong. Whilst a rate rise from 4.75% to 5.5% is about a 16% increase, this is only an increase in the interest part of the mortgage repayments, not the capital amount, so the total rise isn't nearly as bad.

And they say say maths standards are declining :)

I am coming of a five year fixed rate within the next couple of months and I am dreading trying to find the best deal. Because of the fees (arrangement and valuation) it is tricky working out which is the best short term or long term deal. That is without trying to predict where interest rates might go next. Maybe my degree in Economics is making me over think it!

I am one of those borowers you talk about. I bought my house in Dec 05 (3 bed semi). A couple of comments on your analisys:

1) Many people with at least some decent percepcion and intelligence would have factored that payments would go up, and probably are saving now in order to meet those extra costs

2) prices. I would disagree with you on this one. Whilst it is true that higher house prices means that my equity/deposit has increased, I don't benefit from this because: a) I still need a house to live in b) the next step up the rung of the housing ladder (in my case) is about 130K which I cannot afford. THe only way I can benefit from

3) Interest Only mortgages: This is a very dangerous area, if people are not saving to repay the capital this is financial suicide. They should have bought a smaller place or none at all rather than have to go to this extreme "solution". Banks should not be allowed to lend money to someone who won't have a repayment vehicle (whatever that may be).

Evan,

You are the only journalist I have seen that takes into account ''wage increases'' to offset apparent higher mortgage payments. Well Done!

As a professional investor this is one of my arguments for ''affordability''.

The other point you have not commented upon, according to Knight Frank London Summer 2007 report, the last recorded rental increases were 9.1% for the year before last: I have every expectation last year was the same.

OK the impact of mortgage interest rates MAY have an impact (well done for suggesting looking into cheaper mortgages too!) BUT we also have to look at the alternatives to buying:

1) Living in a cardboard box

2) Staying ''at home'' until you inherit the house - if owned.

3) Renting and continuing to pay higher and higher rents year on year - which in the last few years, appear to substantially exceed the impact of rising interest rates.

Great article Evan - spot on (almost) as usual. I will keep you on your toes though, if you dont mind.

Hmmm intteresting...Does this mean interest rate rises will have a sudden effect?.

Did the vast majority of people fixing in 2005 take out 2 year fixed rates?.(I took out a five year fixed rate).

Double digit growth in my house price wont help me meet my mortgage payments. My LTV was below the penalty limit when I took out this mortgage so I doubt there will be much benefit this time round.

My disposable income did not increase noticeably in the last 5 years (until recently when I changed jobs). The gross pay rises I received up to that point were no more than headline RPI and some of that went on paying tax bills. Other household bills seem to rise faster than inflation. I'm certainly disposing my income.

I don't think an interest-only mortgage would help those of us who don't expect massive pay rises in future and can't downsize from our early-homeowner houses/rabbit hutches. We will have to pay the loan back somehow.

Sorry. I've bored myself.

On point number 2, seems like a circular argument. No doubt banks calculate fees to give the same return on the mortgage, it's just interest by another name. Adding these fees back into the mortgage will have the same effect as the equivalent interest rate: All you have done is increased the principal instead of the rate.

Point number 3, it seems unlikely to me that banks will accept recent equity gains at full value. More than anyone, they are probably aware that the coming squeeze might soon dent property values, so they will apply serious risk adjustment to this value. Banks are in the business of profiting from the bubble without taking the risk, the latter is left to the buyers.

I think comment #3 might actually be wrong in this case.

Looking at 2-year rates quoted in the article (average 5.5%) and a quick survey on the web, they appear to be lower than the expected course of base rates over a two year horizon (e.g. the 2 year interest rate swap rate).

It would seem (and this is hinted at in the main article) that lenders hope to recoup the money they lose on these promotions from the lazy people who roll into the variable rate at the end of the fixed term.

My guess is that most people who would opt for a fixed rate mortgage are worried about the fraction of their incomes that would be taken by their mortgage, and hence seek protection from higher rates. I would have thought therefore that few would remain on the higher variable rates once their fixed term expires. The existence of the discount suggests that there are more lazy/too rich to care people out there!

I had another thought about interest rates. Yes, that's what the noise was.

The only debt I have is a fixed rate mortgage and the fixed rate period doesn't end for a few years. So, (assuming I keep my job) short term blips in base rates don't have much impact on my expenditure.

If the BoE put up base rates now could that mean long term interest rates might be lower?. If it does then shouldn't I be able to remortgage at a lower rate than I was originally planning to. So, should I leap in the air with delight everytime the BoE puts up interest rates?.
Also, what happens if I go crazy and spend my "remortgage dividend" in advance?. (Hmmm...maybe I'll buy some unhatched chickens to count).

On Robert Cargill's point #3,

The rental property market is a market and is governed by the rules of supply and demand. If there is an oversupply of similar properties (ie two bedroom flats) then the landlord has a choice of raising rents, which makes them more expensive than his competitors or keeping them in line with the market. Because there is an over supply he therefore can not raise rents unless he wants to suffer the cost of an empty void flat with no tennents.

Therefore just because intrest rates rise, it doesn't mean to say that rents have to rise - as landlords do not have the option of setting rents. It's the market that does this!

The general point is absolutely correct: month by month interest rate tweaks have far more effect on corporate debt than consumers, so rate rises to dampen demand won't have an immediate effect. This has changed in the last 20 years.

The point made by #2 is correct up to a point, but at the early stage of a repayment mortgage, the vast majority of repayments is interest - it is only in the later years that much of the repayment is principle.

Of course, this brings us to the other option for people coming off 2 year fixes - to extend the term of their mortgage to reduce payments.

Finally, people from my generation took out endowment mortgages in the 1980s, then switched to repayment after realising what a bad idea they were. So, over the next few years these endowment policies will be maturing (mine in 2011), with no associated debt needing repayment. This money will end up either shortening mortgage terms or putting children through university - either way, it will be economically distorting.

Some people are against interest only mortgages because individuals are making no effort to pay off the capital. However, look at the maths, when stepping up the ladder this can make sense. We recently sold a house for 150K and bought a new one for 240K. Historically house prices double every 8 years, this means our old house will be worth 600K in 16 years and our new house 960K. The price differential will have increased from 90K at present to 360K. We will have made 720K on our present house which means without paying a penny off the capital we could theoretically buy our old house back and have 120K in the bank, and that's in a mere 16 years not 20 or 25. Of course, to cash you've got to down size!

Very interesting reading as usual. As was said earlier, why is it that everyone assumes a 4% pay rise every year? In my sector of work, there has been a big drive to decrease wages. People on old wages are seen as expensive old dinosaurs. Our upper wage limit nowadays is 20K lower than someone back in 1982! Everyone is depressed in an industry that is supposed to be health orientated, but all our money comes from retail. I was one of the lucky ones who bought a house quite some time ago, so do not have a large mortgage. However, i would find it difficult if not impossible now to buy the same house again and cope with the increasing interest rate rises! I do not have a degree in economics, but something is wrong somewhere!

Evan,

Good analysis but perhaps you can answer a questions that I have had for a long time:

As I understand it, the Government (well OK the Bank of England) controls the economy by raising interest rates to reign back growth and to stop interest going out of control.

It is a pretty crude sort of control not least because of the delay introduced by lots of people on fixed rates. Also, making the cost of borrowing too high harms business and threatens people's homes which isn't a very sensible or nice thing to do.

Why can't the government simply reign back growth by raising taxes and keeping the money raised for a rainy day. This would be fairer because it could be targetted to aviod hurting vunerable people and businesses and would not have a time lag.

When the economy needed a boost (for example during a recession) the governemnt could do this by cutting taxes and using their "rainy day" money (and perhaps extra borrowing) to boost public spending.

Is there an economic flaw in this or is it just that it would be politically unaccaptable for a governemnt to reduce the people's wealth thru raising taxes that arn't spent?

Fixed rate mortgages and interest only mortgages are just ways of deferring the inevitable, and like all such wheezes, all they actually do is make the inevitable worse than it would otherwise have been.

One of the things which apparently exacerbated the US sub-prime woes was the phenomenon of "negative amortisation" mortgages, where you pay less interest than you should and the principal actually _rises_ over time, leading you deeper and deeper into hot water.

How long before some bright spark of a marketing manager over here decides that would a Really Neat way of helping customers negotiate the rises in interest rates?

Interesting. This makes the Bank of England's use of interest rates to manage demand-pull inflation rather suspect.

Mortgages are by far the largest interest bearing debt held by consumers, but if a large percentage of these are fixed rate, the bank base rate will no longer have an immediate impact on disposable incomes. So, we could have a situation where interest rates rise to a point that penalises business' without any significant effect on consumer led inflation.

Furthermore, higher interest rates would lead to currency appreciation, making UK businesses less competitive and pulling in cheap imports to satisfy consumer demand.

Hopefully, the MPC will be able to take a longer term view and avoid these pitfalls.

Keith.

"4. People re-mortgaging have probably seen their income rise in the past two years"

I'm obviously in the wrong job we've had no pay rise for 7 years. Whilst the mortage payments were affordable when I took the mortage out 10 years ago with the of cost increases in utilities etc as well and the current interest rate rises and having a child I'm getting to breaking point.

To Robert Cargill,

I have been both a landlord and a tenant and I can confirm that there have been no 9.1% annual increases in most areas of the UK. Rents in areas such as Reading have been the same now for over 5 years.

Robert #6, a 9% increase in rents is still far less than the increase in property prices in London, further reducing rental yields and the attraction of BTL (and improving the rental proposition for would be buyers).

You cannot take an 8% increase in your personal wage as an argument that affordability has improved. All Evan is saying is that the interest rate increase may not take you over the edge, because you have a nice 8% cushion that you now have to give to the bank instead of for example starting a family, or moving to the next property. The loan is less affordable, but you can still afford it, so stop complaining. Not exactly what most people see as progressing "up the ladder".

The same does of course not apply to new buyers, who are facing the double whammy of more expensive loans to pay for more expensive properties.

I worked in the mortgage industry for some time and can assure you there are thousands of people out there who have borrowed WAY too much - often to 'invest' in buy-to-lets. Borrowing against your home in order to get seed capital to borrow yet more again as a b2l mortgage is an idea sold by many firms who even advertise on radio and in the national press. This gearing effect makes upward market movement feel good, but the inevitable downward turn is going to be horrific. This has not been taken into account by Brown, who delibrately removed property inflation from govt calculations for the first time. Yet property inflation is now the linchpin of most people's investments, and property ownership is perceived as essential. The owner of Foxtons has just sold up - where does he think the property market is going I wonder?

Its all very well saying that wage increases of 8% in the past two years will off set the rise in interest rates, I think someone is forgetting that a) lots of us didnt get 8% over two years and b) everything else has gone up also swollowing up whatever wage increase that we got, long before the mortgage rage rises get a look in.
Renting is a joke, its money down the pan, I've lived with a very nasty landlord in the past and wouldnt wish that on anyone! the only way to try and get a roof over your head is a mortgage and pray you can offord it, there is little to no choice if you want to try and have a secure home.

As ever, this is another interesting article.

So economists now have to look at the number of people on fixed rate mortgages as one variable in the equation for determining where the economy is headed. Then they also have to wait for these to reach the end of their deals and wait for them to remortgage and wait to see what happens. Sounds like a lot of waiting to me.

As people take out longer fixed term (5/10/25 year) deals the situation will get more difficult.

If I understand it correctly, one of the reasons for increasing interest rates is to take disposable income out of the hands of the shopping population. Which will have the possibly undesirable side effect of restricting investment by business.

Would now be the time to start using a different mechanism for taking money out of the economy? For example applying a form of VAT onto mortgage payments that would be reviewed on a monthly basis. This way everyone with a mortgage has a few quid taken out of their pocket. The chancellor gets increase revenue. Business can continue to borrow to invest.

Would that work?
Ali.

Interesting discussion, but let's not forget that the BoE's ultimate aim is for us as a nation to start "pulling in our belts" - what Evan is highlighting is one of the first wave of casualties - it's an unfortunate fact of life that we all don't share the pain (well - we didn't all share the gain on the way up)! Plus, unless there's a specific reason to think otherwise, these guys will represent a relatively small part of the total market.
Let's not forget that the BoE doesn't have a direct interest in house prices, but rather how it affects your propensity to spend vs. save - so if we all stop partying, they'll be no need for any further interest rate rises, despite what happens to house prices.

So one thing confuses me. I'm thinking of remortgaging at the moment to move from a Tracker to a Fixed Rate mortgage. The value of my house has risen by around 15% since I took out the mortage. If I was to remortgage now would my LTV change based on the current value of the house, therefore meaning I could potentially get a better deal from my mortage company, or would I still be stuck with the LTV I had when I originally took out the mortgage?

In reply to Graeme (post #3), I didn't reckon on "beating the system" when I agreed a 10-year fixed-rate mortgage in August 2005, but I did consider it a good risk. The BoE rate at the time was 4.5%. I knew it could not fall more than that amount, and would probably not go below 3%, whereas the potential increase based on historical rates, was considerably more.
Who knows what the rate will be eight years from now, but by then the extra interest on my wife's savings will have made quite a dent in the principal.

Help me!

I am about to (hopefully) sell my first house in order to buy my second closer to home. The equity from my first house will pay off any debt my husband and i have and we will be starting our second house with 100% mortgage but no other debts. Part of me thinks we should fix for 5 years so that we don't have to worry if there are huge rises but i also don't want to be paying hugely over the odds if there is going to be a significant drop in the next 5 years......any advice?

Help me!

I am about to (hopefully) sell my first house in order to buy my second closer to home. The equity from my first house will pay off any debt my husband and i have and we will be starting our second house with 100% mortgage but no other debts. Part of me thinks we should fix for 5 years so that we don't have to worry if there are huge rises but i also don't want to be paying hugely over the odds if there is going to be a significant drop in the next 5 years......any advice?

I believe that responsible journalists should warn prospective housebuyers about the risks of taking mortgages which charge an artificially low rate of interest for the first couple of years. An honest 'fixed rate' mortgage lasts for a long time and costs more than the variable rate because it needs to insure against rate changes.

By subsidising the first couple of years at the expense of the long run, British banks are encouraging those who cannot really afford to buy into massive debt. Look to the sub-prime disasters in America for the consequences.

I believe some people (not me) take out interest only mortgages because the cost (factoring in the intitial costs, maintenance, buildings insurance etc) are much less than rental costs over a period off 5 years+. They can also sell the property and pocket the money from the price rise over the period. No sleasy landlord to deal with either.

As it seems interest rates are too blunt an instrument to control the market, when is someone going to have the 'bottle' to only allow people to borrow what it reasonable for their income?
Failure to grasp this nettle means we will be in a speculators market for years to come.i.e. boom and bust.

Also, does anyone still believe the BoE is independant? Let's face it, Gordy sets the agenda.

To stem house price rises the government should tax buy to rental incomes in full, not just the difference between mortage and rental income. After all Gordon Brown, in his current role; taxes our pensions.

Once tax to let is in place, the BOE will not become so conserned about property prices rises which are currently fueling greedy buy to let folks - whose profits come at the expensive of 1st time buyers and in my books this is very selfish.

Comming off a fixed rate it's just too expensive to move the mortages to another fixed rate, which a 4.99% rate attracting a 拢2000 appplication fee , so :

Just bought my first home on a 5.69% year 3 fixed rate, 40% deposit and plan to pay off 10% of the mortage every year, outside the fixed rate will pay the variable rate which should very affordable. In summary I have planed and managed our finances accordlingly, after all I will have a wedding to plan at some point.

I bought my first house in June 2005 with a 2yr fixed rate of 4.86% and interest only. I did this as it was the only way I could get on the housing ladder and I like to know how much I am paying every month. Recently I have managed to find another 2yr fixed rate at 5.09% however this time I will be paying off the capital as well as the interest. Yes, it has cost a fair bit in fees and yes I'll be paying more a month, but its all numbers at the end of the day and if you do your sums, you shouldn't really feel the pinch of rates going up by a quarter or even half a per cent. People who live on the never-never who will struggle in the next few years.

I have another concern for borrowers coming off fixed rates this year.

As I am a mortgage broker, I have experience of many people taking out 2 year fixed rates on an interest only basis in 2005.

Many of these people stated that they would convert to a repayment mortgage later on in the term.

I expressed concern to them at the time that if rates in general rose leading up to the expiry of their fixed rate, and they also wished to switch from interest only to repayment at the same time, this would result in a major hike in their monthly costs. Unfortunately, this now seems likely to happen, making it difficult for them to start repaying capital.

Finally, Graeme is wrong in his posted comment where he states that lenders only fix a rate at a level where they know they will "win" over the fixed rate term. Since most lenders are now plcs, they borrow the money on the money market, so the rate is determined by what they can obtain plus their profit margin

It is amazing the current lunacy that is going on with this country that the bank of england are quite willing to bankrupt the young to stop inflation rising from 2% to 3%.

I think people need to take a step back and think about this.

How is uk inflation measured? well its based on a basket of goods so if your pint of milk goes up 2p then that is a major rise in inflation but at the end of the day it is 2p.

How is raising mortgage payments by 拢100s going to help? and its fair to say that the increases so far haven't made any difference to inflation.

Interesting to note the comments about 'wages usually go up a per cent or two faster than inflation'! Not if you're a BT Manager/professional as the company does not give automatic RPI wage rises to it's managers!
I was lucky however, I took out a 10 yr fix with Woolwich a few months ago at 4.98% so now look at it from a savers point of view (higher the better)

Thankfully, I have never studied economics, but I always find Evan's comments on the telly very interesting.

There is a feeling around at the moment that the property boom might be about to become a bust.

It was easy to understand the late eigthties property bust - out of control consumerism, Lawson obsessed with Sterling shadowing the Deutsch Mark and then that silly decision on ending shared mortgage tax relief on a particular date. Even a non-economist could figure where all that was going.

This time around, things in the economy seem to be more moderate and maybe there will be a soft landing as the jargon has it. But the stuff about how many borrowers have gone for fixed rate and interest-only
mortgages adds a worrying dimension.

I guess the industry loves to sell the punter a new fixed rate mortgage every few years. Great for commission. As for interest-only mortgages, that sounds even crazier than the old endowment scam.

The industry didn't care what they sold in the eighties so long as they made their short term bucks....and I wonder if they're at it again.

As has happened before, it may be the very creations of the financial services industry which mark the difference between a moderate or painful outcome for the housing market.

Chris N. wrote:

>Since most lenders are now plcs, they borrow the money on the money
> market, so the rate is determined by what they can obtain plus their
> profit margin.

I think most lenders are more sophisticated than that. They can use interest rate swaps to offload a significant proportion of the risk on a fixed rate mortgage. So their rate should be determined by swaps market + margin.

I suspect in some cases the margin is close to zero and, given the competitive nature of the re-mortgage market, they can't bank on customers staying around to pay their variable rates. Hence the propensity to charge large up-front fees.

Just my thoughts,

Keith.

I have to totally disagree with post number 3 banks may have an idea but they dont have a crystal ball...

I am 'the average punter in the street' and took out a 5 year fixed rate in September 2005 at 4.39% (base rate was 4.5%) and since that time rates have risen and continue to rise even if they come down again before the end of my term I think it highly unlikely that I will not 'win' as long as I remortgage again when the fix rate ends.

Thank you to everyone that pointed out ''my analysis of rent rises'' and then go on to give ''their'' personal analysis or experiences of rent rises.

Please note: I made it abundantly clear the source of this analysis; someone I have much more faith in than personal anecdotes - especially in areas not covered by the report I referred to.

As for yields, frankly - who cares? as Evan said double digit price growth AND increases in rents means increasing costs for renters and profits for landlords.

People really ought to avoid their own so called personal experiences and look at the facts. Who knows why some people have not put the rent up? - as a landlord I put it up every 12 months - and I mean every 12 months; I do not worry about ''the tenant leaving''.

It hardly ever happens as there are substantial costs in any tenant relocating - if only in new agent鈥檚 fees! That鈥檚 MY money, by way of rent increases. (and I am not ashamed of that).

One more point someone said they have not had a pay increase for 7 years. Well I don鈥檛 know if they are self employed - but whatever is it I would respectfully suggest an urgent review/job-career change, unless of course you are perfectly satisfied.

I agree with Chris (final paragraph of comment no. 34). Borrowers as well as lenders can benefit from fixed rates (at least in the short-term).

We took out a 3 year fix in August 2005 at 4.29%. Over that period, we will certainly have benefited compared to taking a tracker of variable rate. Of course, the problem may come in August next year when we have to remortgage. But as a result of the fix, at least we'll have saved something over the past 3 years to pay off a chunk of the mortgage on renewal.

An interesting article from Evan and I agree with nearly all his comments. Am just surprised the average fixed rate in 2005 was as high as 5.18%. Also, (re: his 2nd paragraph) can he let us all know where we can currently get a standard variable rate just over 6%? I thought SVRs averaged over 7.5% now?!

I've just received my loan agreement from C&G today, with whom myself and my partner are getting our first mortgage. Fixed rate of 6.25% and a projected variable rate of 6.5%....

I know they can charge up to 2% above the BoE rate but do they usually?

I think variable rate lending is a SHAMEFUL thing altogether. It should be stopped and the Bank of England should realise once and for all that tinkering with interest rates has never brought a successful and thriving (growing?) economy, and never will. All loans should be sold at fixed rate.

Remember that fixed rate mortgages were UNHEARD of until the early 90's when the penny finally dropped and building societies and banks realised it would be fairer on borrowers if they actually shared some of the risk too.

It's disgraceful that people who quite reasonably borrow money within their means should (retrospectively) have to carry the burden of increased interest rates on that because of a decision by the Bank of England. Raise the rate on new loans, sure but not old ones. Money isn't unique, it should have a value like everything else, I mean you don't get a phone call from the dealer a year after you've bought a car to say 'it's worth more now, we want more money for it..'
No wonder so many people are burdened by credit card debt - I've seen examples of the interest rate on plastic go from 17% to 26% in 2 YEARS!

Bring on a Chancellor who knows how to create wealth (I mean for all, not just the City) not just TAKE it and Britain's problems of debt burden and social inequality will begin to diminish.

Refering to Guy in post 43, I'm not sure that there are any good reasons to see variable-rate lending as unfair. It is, after all, a commercial arrangement, made explicit in advance of any contract being arranged. If a bank or a building society is only prepared to lend a member of the public large amounts of money, it's not surprising that they would rather lend it at variable rates. If you don't like it, you should shop elsewhere; no-one is forcing you to take out a mortgage.

Well I took out my first mortgage in january and borrowed a comfortable amount bearing in mind it was just plain stupid to assume that interest rates would stay low forever. Not to brag but I got a 3 yr fixed rate at 4.64% that was agreed before the 3 recent interest rate rises. So at the moment I'm lauging in the face of my lender and while I can afford it I'm overpaying too which will reduce thier profit from me as I can pay off early.

However going by my parents experience of fixing their mortgage rate back in the early 80's when it was stupidly high - they lost out by paying a higher interest rate when the rates dropped. I think it just shows fixed rates are a gamble - you take your chances and have to be prepared to make financial changes when the rate term runs out.

It seems to me far too many people are overstretching themselves with serious financial consequences in the future. And by the way i'm not rich. I suffered university tuition fees, had no help from parents saving for a deposit for my house and have an average salary.

Faye, my daughter is buying for the first time and has got a better deal with The Abbey with a 2 year fixed rate of 5.84% with an LTV of 95%. Arrangement Fee 拢500 and no higher lending charge.
This looks a better deal than the C&G - hope this is of assistance

I bought amy property 3 years ago in an attempt to make my monthly payments more affordable in comparison to private letting. However, this year my mortgage payments are no longer competitively more affordable than renting privately. I shall be lucky to break even should I sell. Not all property investments reap large profits.

Private letting could be an alternative option once again. Don't despair you who cannot afford to get on the property ladder. It is not all it is hyped up to be.

Robert Cargill ( the unashamed 'Rachman' ) must be delusional to think the agent fees are HIS money. My experience is that i'm usually unhappy with the service i get from a landlord/agent. Thus when they put up the rents excessively I use that increase as my reason for leaving. i.e. that's the money I can use to get a new place for free ( it works both ways you see Robert ). The only problem is for people who have kids which I guess Robert isn't too worried about exploiting.
P.s. The bottom line in every negotiation is if you feel you've been ripped off there are always ways you can get even...

I was lucky enough to take out a 15 year fixed-rate mortgage with an interest rate of 4.75% 2 years ago. This was the longest one on offer at the time, so I cut my 21 year mortgage down by 6 years.

At the moment I'm very please with my decision!!

It is with Northern Rock by the way - highly recommended.

Robert, I'd rely on personal accounts over estate agents any day, the latter have a vested interest in portraying the BTL market as healthy. I'll even add my own: zero increase in rent the last two years, that's a reduction in real terms. I'm also saving thousands per year compared to buying, and counting. Anyone else renting in London?

As for yields, all I can say is that ignoring rental earnings (or costs) in favour of irrational capital gains expectations is a dangerous game. It relies on there being others willing (and able) to take an even bigger gamble than yourself further down the road. And with rising interest rates AND house prices rising faster than rents, the odds against are increasing faster than ever.

My prediction is a spike in rents as more buyers decide to wait and see, while sellers sit on overinflated asking prices, wondering where the last sucker went. Turns out it was them.

Chris S (post 46) - I couldn't agree with you more. We're renting and saving over 拢1k a month (monthly mortgage payments on 拢400k are shocking!) and living in a central safe location in London. As expected, we don't put an extra 拢1k in our savings account every month because I'm not willing to give up all the things I enjoy (nice cars, holiday, etc.).

Expectations based on long term bond yields are higher rates in the future. I wouldn鈥檛 waste much time on switching to another fixed rate term! Hence I believe the fixed rate pickle won鈥檛 end in the short term but is likely to be an ongoing theme.

Robert 鈥� I was quite interested by your comment referring to yourself as a 鈥減rofessional investor鈥� (comment 6). From this blog and previous blogs, I get the impression that most of your assets are in property. I鈥檇 be very interested to hear how your investments are diversified or are all your eggs in one basket?

It is decidedly odd, as Tim (comment 15) points out, that all discussions around controlling the domestic economy always come back to interest rates, as if that is the only lever government has to pull on. Nowadays monetary policy - as it is known to economists - is held up to be the only way mankind can influence the destiny of the economy, and as such it is so important that the job of dictating monetary policy has been removed from meretricious politicians to the lender of last resort: The Bank of England.

It should be remembered what the interest rate actually is: it is the price of money. No more, no less. And, when you think about it, a very crude, blunt and unreliable tool. Raising interest rates do not necessarily lead to every renters rent going up, someone somewhere along the line has lost out, but the impact of a rate rise is not always predictable, it always has to be taken in context.

Hmpf..I was going to start discoursing on fiscal policy - which seems to be something of a taboo phrase these days, at least as far as being a tool for controlling the economy is concerned - but have suddenly lost the will to continue. The dismal science has claimed another victim.

(At least until I polish off the rest of the port)

JMK

JMK #52, in one view, if I remember correctly, using fiscal or monetary policy to control the economy is effectively about same thing. You don't cool the economy by tax and spend, but by taxing and saving, ie. reducing government debt. The former is simply diverting demand from private to public sector, the latter is forcing the economy to save more by taking private money "out of circulation". On the other hand, by using the interest rate as your lever of choice, you encourage saving (and discourage borrowing), again taking money out of circulation and cooling the economy. The main difference is, one takes money from everyone to reduce public debt, the other reduces debt by making it more expensive, which hits those individuals and companies that have borrowed most.

Someone else might be able to talk sensibly about the "golden rule", PPIs, and how much the government is actually borrowing or saving, it's beyond me I'm afraid...

Spot on Evan, i will need to re-morgage in december after a 4.5% morgage for 2 years. I am concerned the BOE will over cook it on the rates as we have a baby on the way, if my partner leaves work the morgage will be %50 of my 30K income for a 3 bed semi. We have saved a few K and I am currently pumping money into a 12% regular saver account to offset that morgage rise. Where next then Evan.

If you are lucky enough to be on a good fixed rate which we are (5.69%)it is a super opportunity to make overpayments. We are allowed to make up to 10% a year of the amount outstanding as an overpayment. As I am now 55 with a rotten pension prospect (Equitable Life) I think this is the only sensible course of action. In my case the outstanding mortgage is not really large but I do not have the ability to repay it quickly so I save up with the sole intention of making the maximum overpayment. In my case I opt to reduce my monthly payments as I cannot expect an increase in my annual income. As far as I am concerned fluctuations in property values are irrelevant, it is my ability to keep up with the all the household outgoings which keep increasing (Council tax and fuel) that is my major concern.