The continuing rise in mortgage costs underlines my message that the rise in rates is mainly to do with the Bank of England. Last autumn they signalled rises to come, put up rates and started big bond sales to drive  the price of UK government bonds down. The problems with pension funds overcommitment  to bonds via LDI funds helped trigger an even sharper sell off. Mortgages went up.
This tine round the  Bank has again signalled the need for higher rates and is busy selling bonds off to keep prices down. There is not the same LDI complication yet mortgages have gone up again as have bond yields. Be in no doubt that rates are rising and bonds are falling because that is Bank of England policy. It means large losses for taxpayers on all those bonds the Bank bought up at very high prices. It also means a hit to homebuyers when they have to refinance their mortgages. It is the price the Bank is charging them for its own inability to control inflation  earlier.
June 15, 2023
A return to more normal rates of interest (and these at present prevailing are still towards the low side historically) is surely to be welcomed for it restores the ability to price risk, thereby assisting sound investment decisions.
June 15, 2023
JR
Youâre not the only one who thinks a lot of our current problems are down to the Bank of England. I donât know if you saw George Cooperâs two part article in TCW a week or two ago. He is the author of âThe Origin of Financial crisesâ. He questions whether central banks are creating financial chaos.
I enclose the links should you want to look.
https://www.conservativewoman.co.uk/are-central-banks-causing-economic-chaos-part-1/
https://www.conservativewoman.co.uk/are-central-banks-causing-economic-chaos-part-2/
June 15, 2023
Yes, the BoE and its incumbent leadership are failing miserably. Is it mere incompetence or something else?
Mortgage costs are not as simple as refinancing for most people, some people cannot refinance so they end up on variable rates that they were assured by the BoE wuld not happen (remember “the new normal for interest rates wilol be around 3% which we will move towards with gradual increases”?).
People who are out of work, or older people who cannot take on a longer mortgage term will suffer, often unable even to sell their house in a falling market. This is the great home ownership? Is it really such a nirvana?
note that the problem is exacerbated by yet another bizarre government decision. Buy to let owners can no longer offset their mortgage costs against tax due on teh rental income. So now there’s a massive shortage of rental properties since those with a mortgage are all selling up.
Utter, utter incompetence across all aspects of UK government and institutions.
June 15, 2023
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