Property Prices down in August!!

In message , Aztech writes

They never didnt have me!

Alliance and Leicester are offering 4.25% fixed for 2 years, then 1% over base for the life of the mortgage.

In message , Richard Faulkner writes

'Inflation' whilst being measured by a price index, is really the increase in the money supply. Increasing interest rates decrease the rate of increase in the money supply becuase it reduces the number of times a tenner can circulate. Prices of items, whether internal or external, cant do this.

You forget that the 'price' of something still leaves the dosh paid by the purchaser in the market for the vendor to use on buying something else. 'Selling' something does not remove that money for circulation.

In message , Aztech writes

The vast majority of money lent by the banks is base rate linked and the rates charged changed the very next day.

You seem to be referring only to mortgages which are only a small part of total lending.

It is only recently that people seem to be linking mortgage rates to inflation, I think this is because the measurer used by the Government in giving its instructions to the MPC is a retail price index. This is a bit like a doctor telling a nurse to control a patients temperature. It isnt really the temperature that the doc wants controlled, its the illness that is causing it.

In the case of 'monetarism' the illness is an uncontrolled increase in the money supply. ONE measure of this is a retail price index. The selected medicine is the central bank discount rate. This has an interest effect on the majority of money lent which is NOT in the retail market and certainly not in the mortgage sector.

Domestic house price inflation has encouraged individuals to borrow, but there is more to it than just individuals, but the use of a 'retail' index seems to imply that it is only personal & domestic activity that drives demand for money and 'inflation'.

In message , Richard Faulkner writes

So what? Introductory offers mean nothing. They are funded from marketing budgets.

"Aztech" wrote

Doesn't matter - raising interest rates has a net reducing effect on the amount of cash people have to spend, which causes the price of everything to fall, thus reducing inflation. You're not trying to reduce the price of a specific commodity, you're trying to reduce price pressure generally. So it could be that rising interest rates cause the domestic demand for washing machines or theatre tickets to collapse, while doing nothing to curb the international price of oil. The net effect is still a drop in domestic inflation.

AIUI this is why interest rates were regarded as a blunt instrument for curbing inflation: the wrong sector may get clobbered for the wider good. And indeed the wrong people; in 1990 young professional people on their first or second mortgage, who'd been quite prosperous for the past 5 or 6 years, were beggared by 15% rates, while those living on savings were enriched by them and continued to splurge. The net effect was deflationary, but the pain was highly localised to certain socio-economic groups and certain business sectors.

In message , John Redman writes

This was because the RPI was higher than the rate of interest so the REAL rate of interest was lower than it is today.

In message , John Redman writes

So, if they are worried about oil prices causing inflation - reduce the tax on oil based products, or the crude itself - Job Done!!

Except that reducing taxes means that the Government loses income, changing interest rates means some of us gain and some of us lose, and the government still collects its' taxes.

In message , john boyle writes

Doesnt look introductory to me - the commitment is to maintain the rate at 1% over base. Introductory tends to mean that they get you on the hook, then try to screw you

In addition, once one lender starts this, others tend to follow.

In message , Richard Faulkner writes

I cant see what is special about it. There are loads of trackers, many at less than +1.

Indeed, I bet it's plastered with exit penalties. People think mortgages are like credit cards (in more than one sense) they're priced so finely that once you've paid fees switching to another provider you've saved very little in the process, unless you were being obscenely ripped off before.

Or they equate another banks competitive rate almost level with their exit charges.

Unfortunately not - if the price is rising in response to an excess of demand over supply, lowering the price by reducing taxes on it will simply increase demand still further, and very likely send the price back up to its previous level and beyond. So that is much less likely to succeed as a price reduction strategy than the alternative - of taking demand out by reducing what people can afford to pay for it.

Of course the actual underlying price of oil - $10, $50, $70, $100 a barrel - is really neither here nor there when the government is adding $1,000 a barrel of tax on top of it.

Personally, I don't begrudge the middle eastern countries their $70 a barrel at all. As a perecentage of the average western pump price, it's a pretty modest rake-off.

wrote

But why (do you think) a situation where people have (say) n million to spend on oil which costs n million, would be any better than the situation where people have N million to spend on oil which costs N million ? ['N' being bigger than 'n'.]

If people had N and now have only n to spend, they can no longer afford to pay N for the same quantity of goods. So they either buy fewer goods, which reduces demand and weakens support for the price, or the sellers lower the price so that N quantity now costs n to buy.

OK, yes - so let's suppose the latter happens (cost becomes n by falling unit price).

As I asked before - why do you think that situation is any better than the previous situation (when people had N and paid N)? Both before&after - people pay all they have available, and get the same amount of oil. So is there any difference to them?

"Tim" wrote

Sure. Inflation has fallen.

"John Redman" wrote

How is that any better for anyone? It's only the price of oil that fell, and at the same time the amount of money which people had to spend on oil fell at the same rate - so they still buy the *same* amount of oil, and have the *same* amount of money left-over after they have bought the oil.

As they'll still be in the same position before & after, what's the point?

That is the point. The alternative is to have the lower amount of money while facing the higher price.

"John Redman" wrote

Eh? What's wrong with the alternative of "do nothing and keep price high with 'available money to purchase' also high"?

This is simply asking 'Why is inflation bad?'.