Higher interest rates mean for the size and distribution of UK household wealth(resolutionfoundation.org)
resolutionfoundation.org
Higher interest rates mean for the size and distribution of UK household wealth
https://www.resolutionfoundation.org/publications/peaked-interest/
58 comments
Housing prices here are up 5-10% while interest rates are more than 2x a year ago. The low inventory are keeping prices high and that won't change unless an event happens to force selling.
Yeah, without new stock the house price falls based on the mortgage affordability. So the nominal price is lower but the overall price is the same. Works well if you’re paying cash, I guess.
But of course most people don’t have to sell. They may sit on the property to avoid taking a loss. That makes inventory tight, and means prices won’t fall as much as they otherwise would.
But of course most people don’t have to sell. They may sit on the property to avoid taking a loss. That makes inventory tight, and means prices won’t fall as much as they otherwise would.
This is the same situation in the US. Demand for housing has outstripped supply, and until we correct the supply situation, all that changing the financialization does is to make housing a better and better investment for entities flush with cash. Housing shouldn't be an investment in that way, but that's a different conversation. We need to be driving supply.
Agreed. There are many ways for the rich to get richer. Housing shouldn't be one of them.
If we've got money for Ukraine, we've got money for housing.
But then there's ideology and beliefs. There lies the problem.
If we've got money for Ukraine, we've got money for housing.
But then there's ideology and beliefs. There lies the problem.
Of course they won't fall. The cost of property is set to extract every extra penny from the working class as possible - either in mortgage rates or rental costs.
The owning class who say "not in my back yard" win regardless, because of the supply problem. And they're the ones both Labour and Tory parties kow-tow to.
Want to solve every problem in the UK? Well that's pretty much impossible after 50 years of mismanagement. But allowing housing and getting rid of other planning obstacles (for say north-south power interconnects) is probably the biggest quickest cheapest thing you could do to improve it. But that would upset land owners.
The owning class who say "not in my back yard" win regardless, because of the supply problem. And they're the ones both Labour and Tory parties kow-tow to.
Want to solve every problem in the UK? Well that's pretty much impossible after 50 years of mismanagement. But allowing housing and getting rid of other planning obstacles (for say north-south power interconnects) is probably the biggest quickest cheapest thing you could do to improve it. But that would upset land owners.
Build more yes. But you have to prevent "investors" from buying it all up. City of Vancouver built loads of houses but "investors" bought them all up. Vancouver is ranked the third most expensive city in the world for housing.
Also, aren't there plenty of unoccupied homes in Northern England towns? But there's no jobs. So there lies another problem. Supplies of houses where there's no jobs, and vice versa.
Also, aren't there plenty of unoccupied homes in Northern England towns? But there's no jobs. So there lies another problem. Supplies of houses where there's no jobs, and vice versa.
It sounds like they didn't build enough.
I think in America prices fell somewhat over the last 8 months but with mortgage rates spiking much as they have, overall things have gotten MORE expensive
Finally the young people with a good sized inheritance/money from parents get a break in life.
Not in UK but raise in inflation basically make me go from "can afford modest house" into "can afford a shoebox"
And giving banks more money ain't gonna help squat.
And giving banks more money ain't gonna help squat.
The linked PDF has a lot more content: https://www.resolutionfoundation.org/app/uploads/2023/07/Pea...
I'm determined to understand the full context of this claim: "FIGURE 22: The typical household needs to amass far less wealth to achieve the same standard of living in a higher-rates environment, but far more if rates drop"
I'm determined to understand the full context of this claim: "FIGURE 22: The typical household needs to amass far less wealth to achieve the same standard of living in a higher-rates environment, but far more if rates drop"
That's basic finance. Higher interest rates are about loaners (also known as savers) getting paid more, and borrowers paying that. If you are amassing wealth (rather than amassing debt), then you are a saver and can loan your money to be paid an interest rate. (Note: this is about real interest rates not nominal interest rates)
Savers get higher income from interest, so less likely to spend savings and instead spend interest income.
For someone near retirement who owns their home, inflation somewhat offsets interest income but they're probably not spending a huge amount in general--and higher interest rates mean they can have pretty low-risk investments (which they want a fair bit of at that point) returning 5% or so at the moment.
It's complete rubbish. It only makes sense if you're retiring today and buying an annuity product.
The overall negative effect of people deferring pension contributions (401K equivalent to US readers) due to the higher cost of living far outweighs anything else.
The overall negative effect of people deferring pension contributions (401K equivalent to US readers) due to the higher cost of living far outweighs anything else.
I think the "What" in the original title was load-bearing.
Agree, I thought it was about the mean (average)
I don't know what interest rates have to do with the distribution of wealth (between you and someone else), since they only effect the pricing of future cash flows today between you and your future self.
With higher rates the average home buyer will simply give less money to the former owner of a property and more to the bank over their lifetime. It will make no difference to overall affordability.
And before anyone harps on about saving for a down payment... consider that we're in the middle of a rental affordability crisis also, with rents rising 10%/yr... Why?
Well, wealthy property investors just shrug off the lack of capital growth going forward and jack up rents to maintain their total returns. Who can blame them?
If i'm a landlord I'm not going to settle for 3-4% rental yields (common in recent years in the South East and London) when I can earn that on risk-free government bonds in a much more tax advantaged way (there is no cap gains tax on them)
Furthermore the truly eye-watteringly wealthy will just buy property at a discount should the nominal price crash actually happen, take advantage of rising yields, and then wait for the next credit cycle to lever up again.
Let's not even get in to the National Debt which will put upward pressure on taxation over the next decade if rates remain high, and the frozen tax thresholds dragging tax payers in to paying more as inflation stays high.
The sad reality in the UK is real inflation adjusted earnings have been flat for decades. My entire adult working life in fact.
Those who think house prices are the problem need to consider that the median house price, adjusted for CPI, is actually the same as in 2007, before the GFC, when rates were also 5% or so...
The variable that changed (or rather didn't change) is salaries
The narrative needs to move to productivity and wages, because the UK is steadily becoming a poorer nation
With higher rates the average home buyer will simply give less money to the former owner of a property and more to the bank over their lifetime. It will make no difference to overall affordability.
And before anyone harps on about saving for a down payment... consider that we're in the middle of a rental affordability crisis also, with rents rising 10%/yr... Why?
Well, wealthy property investors just shrug off the lack of capital growth going forward and jack up rents to maintain their total returns. Who can blame them?
If i'm a landlord I'm not going to settle for 3-4% rental yields (common in recent years in the South East and London) when I can earn that on risk-free government bonds in a much more tax advantaged way (there is no cap gains tax on them)
Furthermore the truly eye-watteringly wealthy will just buy property at a discount should the nominal price crash actually happen, take advantage of rising yields, and then wait for the next credit cycle to lever up again.
Let's not even get in to the National Debt which will put upward pressure on taxation over the next decade if rates remain high, and the frozen tax thresholds dragging tax payers in to paying more as inflation stays high.
The sad reality in the UK is real inflation adjusted earnings have been flat for decades. My entire adult working life in fact.
Those who think house prices are the problem need to consider that the median house price, adjusted for CPI, is actually the same as in 2007, before the GFC, when rates were also 5% or so...
The variable that changed (or rather didn't change) is salaries
The narrative needs to move to productivity and wages, because the UK is steadily becoming a poorer nation
The average home buyer isn't a first time buyer. If they bought in the last 10 years they will have bought in a high prices, low interest rate world, and now are entering a high interest rate world with their high price already signed up for.
More money going to a normal person selling a house rather than a bank seems like it would directly related to income inequality.
The issue being that we are getting to a point where a lot of homes are owned by banks so they get their money either way.
The issue being that we are getting to a point where a lot of homes are owned by banks so they get their money either way.
The extra money to the bank will go to the shareholders of that bank. Wealth will move from home owners to bank owners.
> I don't know what interest rates have to do with the distribution of wealth.
Highlights from this research: https://www.imperial.ac.uk/business-school/ib-knowledge/fina...
- We found a one percentage point drop in interest rates boosted the incomes of these top earners by five per cent over two years, while the lowest earners saw only a 0.5 per cent rise.
- Lower rates have a larger impact upon the value of assets than they do upon disposable income – and the wealthier have more financial and real assets.
Highlights from this research: https://www.imperial.ac.uk/business-school/ib-knowledge/fina...
- We found a one percentage point drop in interest rates boosted the incomes of these top earners by five per cent over two years, while the lowest earners saw only a 0.5 per cent rise.
- Lower rates have a larger impact upon the value of assets than they do upon disposable income – and the wealthier have more financial and real assets.
Low interest rates benefits the rich more than the poor thus they can more easily outcompete the poor.
Yep, people need to understand that people are going to be a little reticent to give more money to the bank and keep less for themselves when selling their property, thus, they will have a propensity to raise their prices or not sell altogether.
On the other side of the equation, given higher costs, and giving fixed budgets for buying a home, people will have to quit buying or buying less valuable houses that they can still buy, probably smaller, or in less desirable neighborhoods.
The net effect is one of a net transfer of wealth to the financer viz-a-viz sellers and buyers.
We just invented reverse socialism.
On the other side of the equation, given higher costs, and giving fixed budgets for buying a home, people will have to quit buying or buying less valuable houses that they can still buy, probably smaller, or in less desirable neighborhoods.
The net effect is one of a net transfer of wealth to the financer viz-a-viz sellers and buyers.
We just invented reverse socialism.
Are rents in the UK rising 10% YoY? In the US, rents on new leases aren't rising anywhere near that fast.
Yeah, new leases were rising 11% as of January - https://www.bbc.co.uk/news/business-65103937.amp. I can’t find a more recent source, newer data looks at the overall market rather than new leases, and that’s at 4.9% as of May.
I work in Manchester and colleagues are complaining about rent increases, by up to 20% in their city centre places.
I work in Manchester and colleagues are complaining about rent increases, by up to 20% in their city centre places.
https://www.ons.gov.uk/economy/inflationandpriceindices/time...
ONS says RPI is 11% this month, peaked at 14% YoY end of last year.
Highest it's been since 1980
ONS says RPI is 11% this month, peaked at 14% YoY end of last year.
Highest it's been since 1980
> If i'm a landlord I'm not going to settle for 3-4% rental yields (common in recent years in the South East and London) when I can earn that on risk-free government bonds in a much more tax advantaged way (there is no cap gains tax on them)
You realize that when the price of the real estate go down, the yield in precent for renting them out will go up? In theory to match "risk free" bonds.
You realize that when the price of the real estate go down, the yield in precent for renting them out will go up? In theory to match "risk free" bonds.
Not for existing property already owned. These landlords are sat on huge capital gains and are deciding whether their pitiful yield is worth it in the face of zero prospect of capital gains
> The sad reality in the UK is real inflation adjusted earnings have been flat for decades.
At least in the public sector, inflation adjusted earnings since the recession are down, often by over 20%, not flat.[1] This is why so many UK public workers are striking. Between the government, banks and landlords they’re making it almost impossible to live. Back in the feudalism days the ruling classes typically took between a third and a half of what the serfs produced[2] which is what is happening now as rents are taking over 30% of take home pay in many areas of the country.
> This means that 37% of the average single person's salary now goes on rent, though this proportion is even higher in London: a staggering 52%.[3]
Considering there’s all the other taxes like council tax, income tax, vat and whatever else, the average worker is most likely paying the same amount (or possibly more) to the ruling classes that they did in medieval times. It’s feudalism 2.0, there’s no other way of looking at it.
[1]https://www.ft.com/content/fac8062a-bd83-486b-ac6f-582f19317... - this is from January, so probably even worse now.
[2]https://web.cn.edu/kwheeler/feudalism.html
[3]https://www.refinery29.com/en-gb/single-person-salary-rent-p...
At least in the public sector, inflation adjusted earnings since the recession are down, often by over 20%, not flat.[1] This is why so many UK public workers are striking. Between the government, banks and landlords they’re making it almost impossible to live. Back in the feudalism days the ruling classes typically took between a third and a half of what the serfs produced[2] which is what is happening now as rents are taking over 30% of take home pay in many areas of the country.
> This means that 37% of the average single person's salary now goes on rent, though this proportion is even higher in London: a staggering 52%.[3]
Considering there’s all the other taxes like council tax, income tax, vat and whatever else, the average worker is most likely paying the same amount (or possibly more) to the ruling classes that they did in medieval times. It’s feudalism 2.0, there’s no other way of looking at it.
[1]https://www.ft.com/content/fac8062a-bd83-486b-ac6f-582f19317... - this is from January, so probably even worse now.
[2]https://web.cn.edu/kwheeler/feudalism.html
[3]https://www.refinery29.com/en-gb/single-person-salary-rent-p...
There's been a massive transfer of wealth from bond holders to the British government as interest rates have increased.
The British government is primarily financed by very long term debt [1] which is the most sensitive to interest rates. As the market value of those bonds has collapsed, the government could repurchase them for a fraction of their notional value whilst banks, pension funds and overseas investors have taken a hit.
[1] https://www.ft.com/content/767d81c6-726c-4d34-8b24-d9685a60a... [1*] Key diagram: https://images.app.goo.gl/8oxQ8gw2fbbZWAZS7
The British government is primarily financed by very long term debt [1] which is the most sensitive to interest rates. As the market value of those bonds has collapsed, the government could repurchase them for a fraction of their notional value whilst banks, pension funds and overseas investors have taken a hit.
[1] https://www.ft.com/content/767d81c6-726c-4d34-8b24-d9685a60a... [1*] Key diagram: https://images.app.goo.gl/8oxQ8gw2fbbZWAZS7
Isn’t there a wealth transfer to new bond holders? The government is paying interest to someone on those new bonds.
Yeah, new bondholders profiting from the higher rates.
However, those bondholders represent a minority of the debt. Roughly speaking, new borrowing is 4-5% of GDP whilst old debt is over 100% [1].
[1] https://www.ons.gov.uk/economy/governmentpublicsectorandtaxe...
However, those bondholders represent a minority of the debt. Roughly speaking, new borrowing is 4-5% of GDP whilst old debt is over 100% [1].
[1] https://www.ons.gov.uk/economy/governmentpublicsectorandtaxe...
The government can often repurchase its own bonds. The US Treasury started doing the same thing this month
Such tosh.
"A higher-rates world would also improve housing affordability, helping young, would-be homeowners. Based on current interest rates, the house-price-to-earnings ratio could fall to around 5.6 – the lowest level seen since 2000"
The cost of a mortgage for such people has increased even higher. Maybe in time the cost of mortgage payment will return to the same number of weeks.
If you wanted to buy an average £300k house in August 2022 on a 2% 90% 30 year ltv mortgage, you'd need a £30k deposit and £998 a month. AWE was £618 then, so that's 48.5 weeks deposit and 1.6 week a month payment
If you wanted to buy a house today with 49 weeks deposit (£30,300) and a 1.6 weeks a month payment (£1051) at 6% you'd be able to borrow £170k, so afford a house of £200k.
Houses haven't come down by 33%, nor will they - the supply isn't there. Most Landlords for example do not have a mortgage, but are seeing even higher rental income.
If the average £300k house from last year was up for sale for £200k today, it would be snapped up by cash buyers and rented out to a captive market.
All high interest rates do is reduce spending of people with variable loans (typically mortgages). They do nothing to slow pensioners with massive savings (from downsizing) spending their savings. I guess it might mean landlords will spend the money on expanding their portfolio as deals come up.
If you want to solve the housing problem, you need to build more.
If you want to redistribute household wealth, stop taxing strivers more than havers, merge NI into income tax for example. It's crazy that a house owner with 30k a year in dividends keeps £2200 a month post tax post housing, more than someone working for 70k a year in the city paying 2k a month in rent
"A higher-rates world would also improve housing affordability, helping young, would-be homeowners. Based on current interest rates, the house-price-to-earnings ratio could fall to around 5.6 – the lowest level seen since 2000"
The cost of a mortgage for such people has increased even higher. Maybe in time the cost of mortgage payment will return to the same number of weeks.
If you wanted to buy an average £300k house in August 2022 on a 2% 90% 30 year ltv mortgage, you'd need a £30k deposit and £998 a month. AWE was £618 then, so that's 48.5 weeks deposit and 1.6 week a month payment
If you wanted to buy a house today with 49 weeks deposit (£30,300) and a 1.6 weeks a month payment (£1051) at 6% you'd be able to borrow £170k, so afford a house of £200k.
Houses haven't come down by 33%, nor will they - the supply isn't there. Most Landlords for example do not have a mortgage, but are seeing even higher rental income.
If the average £300k house from last year was up for sale for £200k today, it would be snapped up by cash buyers and rented out to a captive market.
All high interest rates do is reduce spending of people with variable loans (typically mortgages). They do nothing to slow pensioners with massive savings (from downsizing) spending their savings. I guess it might mean landlords will spend the money on expanding their portfolio as deals come up.
If you want to solve the housing problem, you need to build more.
If you want to redistribute household wealth, stop taxing strivers more than havers, merge NI into income tax for example. It's crazy that a house owner with 30k a year in dividends keeps £2200 a month post tax post housing, more than someone working for 70k a year in the city paying 2k a month in rent
Thank you. It's nice to read a comment by someone who gets it.
I get that inflation needed to be reeled in, but these higher interest rates seem to really be hurting the lowest income households.
Come to think of it, just about everything seems to hurt the lowest income households. It’s truly a damned if you do, damned if you don’t scenario.
Come to think of it, just about everything seems to hurt the lowest income households. It’s truly a damned if you do, damned if you don’t scenario.
> Come to think of it, just about everything seems to hurt the lowest income households
Not really. In most European countries including the UK, tax rates are lower and social benefits are higher for those households.
Even VAT has lower rates for essential items like food (which comprise a higher percentage of expenses for those households compared to higher income ones).
Not really. In most European countries including the UK, tax rates are lower and social benefits are higher for those households.
Even VAT has lower rates for essential items like food (which comprise a higher percentage of expenses for those households compared to higher income ones).
[deleted]
The buck is always passed until it hits someone that has no one to pass it to.
Is that true? It seems to be hurting the households with huge mortgages most directly.
The pain is more to do with debt to income ratio than absolute debt
In general poorer people tend to have more trouble servicing debt
In general poorer people tend to have more trouble servicing debt
What variable rate debt do poor people usually have? You have to be of a certain income level to even get a mortgage in the first place.
No.
Inflation is great for mortgage holders.
If ~40% of inflation is rent, it's hard for inflation to be 100% (for example) and rent inflation be 0%. It's possible, but very unlikely.
If you bought an $8M house in Tahoe you can't afford, it would be outstanding if inflation went up to 80 billion percent, because then you'd basically get the house for free (as every dollar last year would be worth $800M this year, buying your house for the equivalent of a penny in this inflated currency).
The only thing bad for mortgage holders is home price deflation - which usually doesn't happen when there is high inflation for the above stated reason.
Inflation is great for mortgage holders.
If ~40% of inflation is rent, it's hard for inflation to be 100% (for example) and rent inflation be 0%. It's possible, but very unlikely.
If you bought an $8M house in Tahoe you can't afford, it would be outstanding if inflation went up to 80 billion percent, because then you'd basically get the house for free (as every dollar last year would be worth $800M this year, buying your house for the equivalent of a penny in this inflated currency).
The only thing bad for mortgage holders is home price deflation - which usually doesn't happen when there is high inflation for the above stated reason.
Inflation measures consumer prices, not the prices of assets like housing
The response to inflation is interest rate rises, which increases the monthly mortgage repayments and total future outlay of mortgage buyers who dont have long term fixed rates (as of course do other rises in costs of living). And of course, this ultimately has a negative impact on the value of the house (although generally quite a modest one, especially somewhere like the UK with a shortage of homes)
The response to inflation is interest rate rises, which increases the monthly mortgage repayments and total future outlay of mortgage buyers who dont have long term fixed rates (as of course do other rises in costs of living). And of course, this ultimately has a negative impact on the value of the house (although generally quite a modest one, especially somewhere like the UK with a shortage of homes)
No.
~35% of the inflation basket in the US is owner's equivalent rent - which is an indirect way of measuring rent: https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
In Canada it's ~41%.
~35% of the inflation basket in the US is owner's equivalent rent - which is an indirect way of measuring rent: https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
In Canada it's ~41%.
If you read your own link, it explains that the entire point of estimating owner' equivalent rent is to avoid counting capital appreciation of housing in the CPI, because house prices are not consumption (and also because actual expenditure on mortgages would be particularly unhelpful to include in an inflation index because it's directly correlated with the policy variable central banks use to reduce inflation)
In the UK, the subject of the OP, measured inflation is around 8% and house prices (which rose consistently above inflation for the last couple of decades) are falling.
Falling house prices are not good for homeowners.
In the UK, the subject of the OP, measured inflation is around 8% and house prices (which rose consistently above inflation for the last couple of decades) are falling.
Falling house prices are not good for homeowners.
Which will go down along with the prices of those homes.
Hm I’m not sure you’re factoring variable rate mortgages, which most people in the U.K. have. As interest rates rise so do mortgage payments (usually with a 1-2 year delay).
Its very expensive to be poor
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And it's back:
Household saving has whipsawed over the past three years. The adjusted saving ratio peaked during the pandemic at 24.4 per cent – the highest on record. Saving has declined since but remains above its pre-pandemic level.
Saving behaviour has direct implications for household wealth holdings, but the fluctuations in interest rates have had a more profound impact: the pandemic saw interest rates hit record lows and asset prices boom which pushed the value of wealth to a peak of 840 per cent of GDP in early 2021.
The cost of living crisis, coupled with the monetary policy response, has put an end to the trend of rising wealth. Our estimates suggest that the wealth-to-GDP ratio fell to around 650 per cent by early 2023. This is by far the biggest fall on record as a proportion of GDP, wiping out £2.1 trillion of household net worth in cash terms.
A higher-rates world and an ultra-low rates world represent starkly different societies to live in. If the rise in long-term interest rates persists, would could see household wealth settling at around 550 per cent of GDP, a level last seen in 2007. But, if downward pressure on long-term interest rates resumes, this could see wealth settling at around ten-times GDP.
The future path of long-term interest rates matters hugely in the context of intergenerational inequality. Higher rates of return make it significantly easier to save for retirement. Pre-pandemic, a 40-year-old with median earnings needed to save approximately 16 per cent of their gross income (just over £5,000 a year) to reach a retirement target replacement rate of two-thirds of gross earnings. However, with current rates of return, the required contribution rate for the same goal is much lower at 9 per cent (£3,000 per year).
A higher-rates world would also improve housing affordability, helping young, would-be homeowners. Based on current interest rates, the house-price-to-earnings ratio could fall to around 5.6 – the lowest level seen since 2000. But if ultra-low rates return, there would be further upward pressure on house prices, with our modelling suggesting that they could reach 11 times earnings.
> Sorry, the page you are looking for is currently unavailable.
> We apologise for the inconvenience, please try again later.
And it's back:
Household saving has whipsawed over the past three years. The adjusted saving ratio peaked during the pandemic at 24.4 per cent – the highest on record. Saving has declined since but remains above its pre-pandemic level.
Saving behaviour has direct implications for household wealth holdings, but the fluctuations in interest rates have had a more profound impact: the pandemic saw interest rates hit record lows and asset prices boom which pushed the value of wealth to a peak of 840 per cent of GDP in early 2021.
The cost of living crisis, coupled with the monetary policy response, has put an end to the trend of rising wealth. Our estimates suggest that the wealth-to-GDP ratio fell to around 650 per cent by early 2023. This is by far the biggest fall on record as a proportion of GDP, wiping out £2.1 trillion of household net worth in cash terms.
A higher-rates world and an ultra-low rates world represent starkly different societies to live in. If the rise in long-term interest rates persists, would could see household wealth settling at around 550 per cent of GDP, a level last seen in 2007. But, if downward pressure on long-term interest rates resumes, this could see wealth settling at around ten-times GDP.
The future path of long-term interest rates matters hugely in the context of intergenerational inequality. Higher rates of return make it significantly easier to save for retirement. Pre-pandemic, a 40-year-old with median earnings needed to save approximately 16 per cent of their gross income (just over £5,000 a year) to reach a retirement target replacement rate of two-thirds of gross earnings. However, with current rates of return, the required contribution rate for the same goal is much lower at 9 per cent (£3,000 per year).
A higher-rates world would also improve housing affordability, helping young, would-be homeowners. Based on current interest rates, the house-price-to-earnings ratio could fall to around 5.6 – the lowest level seen since 2000. But if ultra-low rates return, there would be further upward pressure on house prices, with our modelling suggesting that they could reach 11 times earnings.
whether there is high or low interest rates, property is still (and probably always will be) unaffordable to me.
but at least with high interest rates my savings seem to have more value.
but at least with high interest rates my savings seem to have more value.
Since interest rates are usually used to fight inflation, and inflation often is higher than interest rates, no your savings account generally does not have more value.
so with zero interest rates my savings are worth more over time?
isn't low/zero interest rates what got us into this high inflation problem in the first place?
cheap loans makes it easier for the wealthy to take loans and buy up more property and so on.
isn't low/zero interest rates what got us into this high inflation problem in the first place?
cheap loans makes it easier for the wealthy to take loans and buy up more property and so on.
No, your savings are only worth more over time if interest rates are greater than inflation. It doesn't matter if the are low or high in this case, just that they beat inflation. This is practically never the case, because the market would never hand out such arbitrage.
I'm speaking about risk free interest rates in a traditional savings account (because that is what it sounded like you are referring to). The only way you can beat inflation is by taking on more risk such as investing in the stock market, or yes real estate (which is a risk, even for those wealthy people).
I'm speaking about risk free interest rates in a traditional savings account (because that is what it sounded like you are referring to). The only way you can beat inflation is by taking on more risk such as investing in the stock market, or yes real estate (which is a risk, even for those wealthy people).
While this is true, I would think the higher interest rates would make it much harder to afford the same mortgage. So while housing prices may go down, the monthly payment will not necessarily go down in lockstep as the cost to borrow increases. Could see it leading to multi property owners not selling but just continuing to rent and increase the rents as many of the people looking to purchase would now not qualify at a higher rate. The landlords are forced to remain landlords as they have a good locked in rate but they cant sell due to reduced equity.