I don't think era of free rates are over look at the long term trend of rates... this is due to higher debts to gdp, lower birthrates etc. Look at Japan they still have negative interest also look at Germany still quite low considering... the main issue is supply side when that eases the govs will worry about deflation
UK: Pensions LDI blowout, BoE reverses course; US: Pensions crappy illiquid PE returns hit statements, force corporate funding of underfunded pensions implying more inflation; Canada: no implosion.....despite 100%+ debt to gdp no implosion...yet
I really appreciate all the effort you are putting into those videos and really like that you are trying to appear as unbiased and rational as possible when presenting data. In the near and mid term its unprobable that we will see rates drop to 0 but what makes you so sure we wont be doing that in the long term (like 5-10 years)? Thanks in advance
In case, you haven't realised yet (but you will), everything has changed in the last 2 years. Have you heard the phrase "You'll own nothing, have no privacy, and you'll be happy"?
Hopefully rates will rise above inflation and savers such as myself will stop losing money. I’m fed up being ripped of by the banks just so they can give out cheap money to pay for unsustainable property prices.
It's fun to speculate, but given that this estimate is built on top of two other estimates (both of which are notoriously inaccurate), I wouldn't put too much faith in this prediction. If anyone could really predict the path of future interest rates with any certainty, they'd be obscenely rich !
Very didactical video as you explain a difficult subject in a easy to understand manner. The peak of the interest curve is assumed to be 2023 according to the Fed's forecast. These estimates are predicated on an almost perfect combination of factors, sprinkled with an optimistic outlook. Given the reality of loose fiscal policy vs tight monetary central banks, it's likely that inflation would remain longer than 2023. I do not see light at the end of the tunnel yet. A great follow up video would be the impact on the equity markets if the rates continue to claim.
So is 2 percent above the UK base rate a good estimate on fixed rates? If so why are current deals at roughly 6% when the base rate is 2.25%? I'm assuming they are factoring in the rates rising over the next few months already?
The swap rate, driven by the gilt borrowing rate and the risk/LTV rate of mortgage drives this variance in bank rate to mortgage rate. Coupled with policy differences between govt fiscal and BoE monetary. I think given where we are and how quickly things have happened means the rate isn't sitting stavle at +2%
@@tastypymp1287 that’s assuming people behave rationally but we know that in times of crisis they don’t and often panic sell. Quality stocks become oversold. Buffett knows this and always has at least 20 Billion to snap up bargains when they emerge.
@@TheCompoundingInvestor Nope, wrong. You're merely repeating the tired ol clichéd hackneyed rhetoric and talking points. You're being too general. Buffet doesn't randomly buy undervalued stocks (no such thing as oversold, that's trade talk BS). The firm puts ALOT of work into the analysis (something your average mom n pop homebody cannot hope to do) behind their decision making. We're talking millions and millions spent in the research. And even then they sometimes get it wrong or get unexpected negative outcomes. It's undervalued for a reason....
The weight of monetary stimulus, negative interest rates, prior fiscal stimulus, rise in savings and central bank heavy reliance on supply side improvements are the primary sources of inflation. Corporation tax cuts do not necessarily lead to inflation; redistributive effects for listed companies are global for example and rising costs are hitting profits in small and medium businesses.
The 30 year fixed has a cyclical nature driven by FED policy after 2010 until COVID arrived in 2020 it was roughly between 3.5% and 5%. Your findings of 5.8% I assume would be the new median so the cycles would potentially vary between, just a total wild guess, 5% to 6.5%. So around a 1.5% increase from the last 10 years as a rough number. But this is all just a guess.
So basically our government has added 2% to our mortgages, which on an average mortgage of £200k is an additional £4k per year. The energy price cap will probably save the same household £2k per year max, so they are net £2k worse off. Also, interest rates at 7% will surely cause prices to fall and lead to repossessions. The loss of wealth and household disposable income is potentially immense.
They've added 2% to my savings rate too. Swings and roundabouts. Anyone who stretched themselves to buy a house with interest rates at 5000 year lows only has themselves to blame imho.
@@chrisf1600 there was nothing inevitable about this crisis. If they’d concentrated on lowering inflation by coordinating fiscal and monetary policy, we would not have seen interest rates rise much above 5%. This is a level that lenders have already stress-tested at, so homeowners would have coped.
with base rate at 2.25% the best 5 year fixed for monthly income right now is about 2% above this. with base rate forecast to reach 5 or 6% by the summer any thoughts on 5 year fixed for monthly income reaching 7 or 8% or higher? i daresay it will all depend on whether they peak at 5% or stay there longer term. i don't know who would pile into a 5 year fix right now when waiting 6 months or so seems obvious for a better return. particularly if you've not had a decent return for 15 years.
Why dose Robert Peston or Liz trust have their jobs This guy should be doing there job its the way he explains it in Laymans terms very clear itv this is the guy you need lol thanks for the video very good 👏🏾👍🏾👊🏽
To what extend would the higher rates affect property prices? We have just secured 3.3% 5 year mortgage before this whole fiasco started, and our house was valued at £425k. Wonder by how much in 5 years this value will drop.
Hi Ramin. Great video as always but what is behind your view the era of free money is over. UK and other countries will remain keen to grow their GDP and stimulate their economies as we seek to grow out of the somewhat inevitable recession ahead. Past experience would suggest they will cut interest rates to achieve that?
So how will that contradiction be handled? Growth doesn't aid tackling inflation which is the top priority right now so it's likely the central banks will have to counter loose government fiscal policy with even tighter monetary policy. Because the government doesn't control money supply or the cost of money.
Im just a bit concerned, as i have moved from Scottish Widows to Vanguard lifestrategy 80 fund (70%) with S&P (30%). Is there another fund i can replace with the Lifestrategy that would have more global influence?
My mortgage term comes to an end this month. I was all set on remortgaging, taking money out and getting a buy to let, had offer accepted about a month ago but now with the rises it has become completely unaffordable. I’m unsure what to do, whether to fix for 2 years and take 10/20k out and invest in an index fund, or sit on it hoping to get a cheap house next year , or sit on the variable rate and ride it out giving me some flexibility Any recommendations? Great channel by the way 👍🏻
The other huge market rising rates will impact is the car leasing market. My brother has been leasing cars for the last 30 years. He is now going to buy the the current car he has been leasing.
So disgusting to see consumers driven by debt. These past 2 years have really exposed the ugliness of peoples relationship to interest rates and debt, low interest rates (along with some other external factors) lead to soaring FOMO demand for houses, cars, etc.. As someone who does not use debt, I look forward to higher interest rates. Values will drop, and buying opportunities will present themselves. 😊
It’s quite peculiar to see someone describe a consumer purchasing tool as ‘disgusting’. Not all debt is bad and not all economic situations require elevated interest rates. Additionally, it isn’t just consumers who use debt, many business use borrowed money to promote growth by investing in machinery and technology to increase productivity. There are a whole host of reasons why people and business use debt. Just because you do not borrow money, it doesn’t not mean all borrowed money is bad. It’s a very naive, insular way of thinking.
It disgusts you? Ugliness? Odd opinion. I'm indifferent. I couldn't care less. They made their bed, good luck to them. Like you, I'll be waiting to take it all off them at discount.
Shortly the psychological penny will drop with bond investors that getting 4-5% on gilts is a complete rip off when CPI (no laughing at the back) is at 10% and going much higher. Debt servicing for everyone in the UK is going to rise significantly, and it doesn't matter what the Bank of England do they are a busted flush.
If you were an international investor would you put your money in UK PLC with Truss and Kwarteng making massive financial decisions without a proper budgetary analysis and unfunded?
I wonder if markets have fully grasp the fact that the cheap money era is over? Equity and property is still too expensive with in mind rates will probably go back to pre financial crisis levels for the long term.
If long-term interest rates reflect nominal growth rates he's got 2022 5.6 nominal but the 30 yr interest rate is 7.5. Does that mean the interest rate tends to be around 2% above the nominal growth rate?
I believe due to amortization and early prepayments of principle US 30 year fixed rate mortages are priced relative to 10 treasury notes more than they are relative to 30 year treasury bonds. In most cases there is no penalty for paying off such mortgages early (either by making additional principle payments or when a house is sold). US homeowners get more attractive financing arrangements than homeowners in many other countries do.
I have a £100k mortgage on a £300k house. I am locked in from June thus year for a 5 year fixed at 1.5% on a 40 year remaining term, so about £350 a month. Do I overpay by £350-400 a month in order to drive down my mortgage for 2027 remortgage? I am already maxing out my lifetime isa and putting more into another stocks and shares ISA and dont have and stupid debt like unpaid credit cards or a car lease etc.
@@ScipioAfricanus809 Dave Ramsey would say paying off debt is a certainly, whereas investing carries risks, but putting another £200 into the S&P500 and FTSE and £200 towards overpaying my mortgage could be a good balance. Maybe £300 into the isa £100 to the mortgage.
You can get more that 1.5% in a saving account now. If you want to be safe put the extra money in a good rate savings then when you remortgage you can add the money in then
40 year mortgage I didn’t know that was a thing. If it were me I’d max out your payment & reduce that term considerably. Who knows where rates will be in 5 years I’ve just fixed @ 3% but have 7 years left. We can all pull charts up & guess what rates will be in 5 years time but truth is it’s a guess at best. Research historical interest rates to see how abnormal rates have been post 2008. If base rates remain even close to 5% even for the next 20 years historically speaking that’s still a really low rate. 100% agree the gravy train has left the station but rates going sub 5% even if they could they wouldn’t purely to keep inflation under control. This recent financial crisis is a lesson I think that’s going to have a long memory. That said if you carry on paying for 40 years calculate interest rates in scales of best case & worst case. If the interest paid over a 40 year period which is considerable what would your projected returns be on investment made vs paying the mortgage down. Workplace pension as someone just mentioned is probably the best investment tool around.
Max your workplace pension (employer matched) first, that’s really the best investment as you basically get an instant 130% return every penny you pay in. After that I’d probably be splitting my money between overpayments and stock market index funds. But remember, you can always sell stocks, but money overpaid to the mortgage is gone forever. I’d personally lean towards more stock market investment.
I've been wondering what's the theoretical ceiling the rates could go? For example could they reach 7,8 or 10%? Since we are predicting fall of GDP even at 3%, wouldn't that be bad for the economy, even if it does bring down the inflation? I'm asking because we are about to get a mortgage and I can't see an argument for taking a fixed rate currently except for maintaining your monthly payments the same for that period or the scenario where the base rate goes above 6%
Two options you raise the rates and kill the economy amd then you rebuild or you end up with stagflation that then turn into hyperinflation and you kill the economy anyway and you turn into Venezuela
I think there is not enough commentary on the Bank Of Englands role in all of this. Perhaps a video about where the rates where low and when the inflation started to take off. The reason that I feel this is very important because it gives a clear commentary about how we got to such high and uncontrollable inflation when it is the BOEs job to control inflation. The method they use is interest rates and the timing of the use of interest rates is crucial. You will also be aware that a number of investment institutions in this country and the US have been saying since last October that the BOE and the FED are behind the curve on inflation. It was also stated that if this is allowed to continue then the consequences of coming late to the party are likely to be very costly.
How do you know 5 percent will break the back of inflation,we're only a couple of years into this stagflationary cycle,seems early....and precious metals still seem asleep relative to money printing.
Yeah I'd say so, along with negative interest rates, and high levels of borrowing people got without much trouble for various purposes. It could also mean central banks funding governments with near-unlimited amounts of money.
An interest rate lower than inflation is effectively free, even if you have to hand over some money in interest, since your wages should be rising faster than the interest rate, so you should net more new currency units at your job, than you pay in interest. This is effectively free money, since you are paying back cheaper dollars than you borrowed.
Is it a good time to sign up for the vangaurd lifestrategy 100, or shall I wait couple months and see how the market reacts coming new year? Your feedback will be hugely appreciated and have major respect for the service you are doing to people who have are less knowledgeable. Thank you sir
I'm dca into ls100, I have a big lump sum but think now isnt the time to go all in, my money that's not invested will be earning interest whilst the ls100 does whatever it does. There is no perfect answer though imho, just do what you feel comfortable with and dont invest what you might need in the next 5 years.
Great video as always, although I am confused by two of your sets of data that seem to contradict one another. 4 mins into the video you show a graph with 60% and 95% LTV mortgages two year fixed at 3.5% to 4.2%. Then 8 minutes into the video you have a graph showing the increase in mortgage rates for two and five year fixed at 5.5%. I know that you are smarter than I, so did I miss something?
I know things are stalling, but isn't the goal to bring prices down? We seem to have tolerance for over inflation, but none for deflation. I thought recessions were just part of the package?
No. Because the oligarchs no the peasantry are shit out of "disposable" income, that in fact they're addicts on debt just to get basics, screw ability to save. Worse in the US, but UK and Europe not far behind. Korea already insane on this camp. And Japan... well they've given up long ago. China... they lose it in lots of swindle stupidity: their equity bubble 2015 and now the ghost city real-estate decades long insolvency mess. So the only way to for the oligarch to syphon all incomes from the peasantry that have a smaller and smaller pot to piss in, is to monetize bad debt from banks, pump the chicken on all assets, particularly inelastic basic need things like housing and utilities with frills catering to a few morons who think they're rich, but really are playing debt bing them selves to keep up with the oligarchs they think they've become... so things like TSLA or AAPL over priced junk and to the point of pure unadulterated con... vapor ware. So make home prices high along with rents and that preserves a cash flow from the peasantry to thine pockets. Easy to do when you've bought all media outlets and have propounded various idiot notions that favor you and completely screw the peasantry... similar to the churches of old did. A con that has tested challenges of time. This way, with both hands the peasantry give up their citizenship of being the government and hand it squarely over to you and your few plutocrats. USA it's fantastic. WE don't have a central bank, rather a private banking cartel that has anointments of the government via some Congressional: "Oh you private cartel can F us and F us hard... so long it's (us) is the peasantry, and we're getting a little in our pockets while the rabbits are doing their thing." It's stupid on stupid to the perspective to us peasantry. To the oligarchy it's brilliant with one potential draw back... and that's the race to Sri Lanka. But that's where embracing one of their less hated demagogue that pretends to favor the needs of the masses yet with the BS BDSM methods that F the masses hard while ensuring a steady if not huge income stream into the fews' pockets. Now, this could lead to complete collapse or some really bad gangster insanity where oligarchs literally start eating each other... and I'm not the civil way via making investment bets against one another or talking crap about one another... but literally hiring countries and private militaries and thugs to.... make each other go away.
There are lots of goals, it would be nice if taxes kept coming in, and that can dry up real fast in a recession, and a lot fewer houses are selling now, with 7 % mortgages.
Many spanners can fall into the works in UK ? Polictol and State instability might change all this ? A Scotland's Secession from UK Union, ending United Kingdom as a viable State and the dissolution of United Kingdom , sending Brexit isolation into even more isolationism of Lesser Britain into a deeper downward spiral.
Hi @E Dan the dollar has been a source of instability this year as it strengthened versus almost every currency. But you're right about the importance of the Fed which is why I think investors have to listen and understand what they say. Thanks, Ramin.
Potentially a dumb question here: Why do mortgage rates change when central bank rates change? Is the bank that I am borrowing from for my mortgage, borrowing their money from the central bank? Thanks
Essentially if they were still offering 3% mortgages to customers it wouldn't be worth it for a bank to give you a mortgage because they could attain a "risk free" 4% return from buying Government Bonds. So they need to tack on an extra couple of percent to take on the additional risk of offering you a mortgage. That's my simplistic understanding anyway.
Hi What about the discounted variable rate thar are on offer by lenders at the moment? they are about 2% less for then standard variable rate, and are to be discounted for the fix periord of time. What are your thoughts about it? Representative example: A repayment mortgage of £114,340 payable over 22 years, on a discounted rate of 2.74% for 5 years, and then on a variable rate of 4.85% for the remaining 17 years. You would be required to make 60 payments of £577.16 and 204 payments of £677.72. The total amount payable would be £173,734.00 made up of the loan amount plus interest (£58,544.00) and fees (£850). The overall cost for comparison is 4.1% representative.
What about fuelling inflation in an inflationary environment by increasing the volume of sterling in circulation, as the BOE is doing by supplying over £ 65 bln in Gilt purchasing? You can inject new currency within a deflationary dynamic; as it was the case of past quantitative easing interventions. Now it is like extinguishing fire with gasoline. An Insanity forced by this incompetent dreadful government.
You say the Fed funds rate will peak 1.5% higher ("considerably higher"). For us with grey hair and a good memory, I would say that is not considerably higher historically, and all the figures the Fed predict are based on a soft landing. Something they have great difficulty achieving historically.
Hey Ramin thanks as always for such great content, as a content idea, I know I would love to see a revision of your previous house price model given the massive recent changes to the economic situation.
Events will dictate the interest rate hike cycles. It would just take a very bad economic report or two for the UK and the Bank of England would have to throw in the hiking towel for fear of putting Britain into a long-term depression.
Sorry Ramin, do you really think we should be trying to predict 30y US mortgage rates based on that dot plot ( against nominal GDP)? It was completely random with just heavy statistical analysis used to plot that sigmoid relation. Extreme extrapolation of data is meaningless..
Gilt rates have dropped quite significantly and the pound has recovered strongly since the recent drama we have seen. Are we likely to see mortgage rates come down in the very short term to the levels prior to the panic before raising in line with BoE base rates?
fantastic for savers and house buyers as more money for savers and lower house price for buyers win win the people who loose the bond bankers so its all win
I paid 14% in the early 90s. Also, as I was a serviceman and mobile, I had to move. I was not allowed to have 2 mortgages in those days so could not let. In 2009 the criminal elite started the rich peoples quasi quantitative easing free money printing scheme and dropped the three times earnings criteria. The criminal elite better not come up with another scheme where the poor are burdened with debt and the elite get their bonuses. The working classes have not paid of the debt from the previous quasi schemes so they better not introduce any more. Remember 1992, 2008, then quantitative easing in the 10s, and now property bond bail outs. They say the latest bailout of the rich is to save their pension funds. I say to pay for the bad debt of the free money given to the elite and those with 100 properties. That fourth bailout ends next Friday. From then on the poor better be treated to free money. They have been paying for the rich for too long.
You make a big conclusion about the Era of Free money- however inflation has been fuelled by excessive government intervention especially in the USA mortgage back security market also you neglect to mention supply side issues - Central banks raising rates to try and fix supply but what we have seen just now is OPEC cut production -- when supply side is resolved you could have a deflationary environment where rates may have to go back to previous lows --- the era of free money is not over - we have aging populations and less real growth when you strip aside the helicopter money and wars..
Many forecasts predict mean regression in 2-3 years time, but without citing factors to indicate why this is more likely than a continuing upward curve. The current inflationary cycle has been caused by a global pandemic leading to acceleration of already awful levels of national debt and concomitant monetary supply increases. It has been combined with a ruinous disruption of global supply chains - entangled in US-China relations - damaging the supply side. And now, with war in Europe, we have an energy and food crisis lawyered on top. Mean regression therefore relies on reduction of debt and monetary inflation, restoration of global supply chains, the end of war and the return to cheaper energy supplies. Are we really confident in predicting such optimistic reversals? Or is the greater probability that it will take longer than 2024-25 to reverse these trends?
First, the pandemic didn't cause inflation. Government policy and the subsequent reaction to it by central banks did. And yes, it will take a long time to sort this. What most investors either can't or won't believe is that the pivot has already happened!! Hence the hawkish stance of the central banks. They can't believe the good ol bull run and cheap money is over. But it is.
I’m not interested in knowing the mortgage rates for prospective buyers. IMHO, if you’re thinking of getting a mortgage at a time when interest rates are sky high and very much and ‘unknown’, you must either have a lot of money to play with or you’re very stupid. I need to know how high my existing mortgage rate is likely to rise and for how long. I’m on universal credit and PIP because I genuinely cannot work. I have a brain tumour and epilepsy along with other debilitating side effects of my tumour. I’m mortgage trapped with Landmark who are essentially a debt collectors who don’t offer mortgages or any other existing mortgage terms other than the variable rate. Right now I’m paying £750 to my mortgage which has been rising by £50 every month and I’m left with £350 to pay all other living expenses including electricity, gas, water rates, council tax, Internet (which you have no choice but to have because any state benefits are done online now). There’s extras such as tv license, building’s insurance, and of course, food. I’m coping at the minute by not using any heating or my cooker and I’ve been living on stocks of tinned soup and whatever’s in my freezer, and just don’t know how I’ll cope with the mortgage rising every month. I’m barely eating and using a hot water bottle to keep me warm and am building up arrears on my mortgage. I can’t voluntarily sell the house as that would categorize me as making myself homeless and disqualify me from any social housing and I can’t realistically pay the full ongoing increasing mortgage payments indefinitely without falling into more are arrears and I can’t sleep at night for worry. If I could get an approximation of how long these increasing mortgage interest rates may continue, even in the worst case scenario, I could resign myself to knowing the house will be repossessed and I might be rehoused.
EU countries can default on debt and indeed have. A case can be made that default by Italy and Spain is almost inevitable. Countries that use a foreign currency and since the Euro belongs to all Eurozone members it is a foreign currency to them, cannot just print Euro's to cover their debt. In contrast the UK and US can print pounds and dollars at will. So whilst it's true to say it is impossible for the UK/US to default, it is not true that the developed European nations cannot and that is why no one should be holding Spanish or Italian Government debt without a risk premium because there is genuine risk of getting a haircut.
@@MrSupernova111 I detect sarcasm and it's not unwarranted. You're not wrong either but the fact remains. It's impossible for the UK or US to default it is perfectly possible and indeed quite probable that EU countries will default.
2026 is the estimate for rates to come down to the low levels we saw in recent years. I'd plan and save/overpay a lot if I were you, so that high rates don't affect you as much.
@@aliasgharkhoyee9501 I don’t think that’s taking into consideration the damage these rates will do to the economy. We are already seeing a pivot in the U.K.
