Mixed messages

A bit like when my wife tells me it is OK to go out for a few beers with my pals and then I roll in ever so slightly inebriated in the early hours of the morning, safe in the knowledge that...

Section: Opinion

A bit like when my wife tells me it is OK to go out for a few beers with my pals and then I roll in ever so slightly inebriated in the early hours of the morning, safe in the knowledge that I ‘had a pass’ and couldn’t possibly be in trouble with Mrs T,  Mark Carney has sent out very mixed messages over whether or not Bank Base Rate will increase this year, above the current level at 0.5 per cent. 

Originally, Carney had indicated that interest rates would not rise until wage growth had been restored in the UK. This was interpreted as pushing back a possible rate rise until 2015 and that any rises would be slow and incremental. With wage growth and employment levels still below the level of inflation, it seems a relatively safe bet that rates will not rise this year then? 
However, in an Interview with the Sunday Times today, to mark the first anniversary of the forward guidance policy on interest rates, Mr Carney stated that: “Bank base rate may have to go up before households enjoy a rise in living standards.” He went on to say that he would not wait for real wages to turn positive before lifting the bank rate from its record low of 0.5 per cent.  So clear as mud then, as usual. 
I suppose the real concern is that many borrowers are still enjoying extremely low rate, base rate trackers and are sitting on interest only payments. Refinancing will mean paying much higher rates and, with the exception of very low loan to value borrowing, almost all borrowers would be looking at switching from interest only to repayment basis. For borrowers barely coping with debt and just about surviving in the current climate, the prospect of interest rate rises will be terrifying.  To maintain any hope of mortgage debt remaining affordable and to combat any potential future interest rate rises, which are inevitable, whether it be this year or next, some borrowers will be gambling by staying on their base rate tracker deals in the hope that rates do not rise too sharply or too quickly, if only just to preserve their existing interest only facilities. 
With house price increases reported to be slowing and in some parts of Central London, even dropping (I heard on the radio this morning that some parts of Central London had seen a six  percent drop in asking price over the past month), buyers may start off-loading properties whilst they consider asking prices to be at their peak and before prices decline again.  According to online estate agent Rightmove, the average asking price in London fell from £587,174 in July to £553,783 this month, the third consecutive monthly fall.
With the threat of interest rate rises and the effects of MMR on mortgage lending, it is no great surprise that things seem to be cooling off, with our Capital City always the first to be affected. It is important to remember that Central London is its own micro-economy and doesn’t necessarily reflect the UK economy as a whole.
 

Source: Bridging & Commercial — https://bridgingandcommercial.co.uk/mixed-messages