INTEREST RATES AND BANK OF ENGLAND FORWARD GUIDANCE and HELP TO BUY 15.08.13

As you know Mark Carney,Governor of the Bank of England, has given forward guidance on interest rates. He has stated that they will remain unchanged until unemployment drops to 7%. It is indicated that rates are likely to stay as they are until 2016. Is that credible?

The markets do not think so. The FT yesterday reported that gilt yields were near their highest since October 2011. US interest rates are on the rise since Ben Bernanke, chairman of the US Federal Reserve, indicated that quantitative easing was going to be phased out in the near future. The US economy has been improving and now there are signs that that is happening in the UK too.

It is now clear that interest rates will rise at some point in the not too distant future. The question is when? I would not be surprised if this happens sooner than people expect, especially in the UK. History has shown that interest rates in the UK and Europe are affected by what happens in the US. So I doubt that Mark Carney will be able to prevent that.

When interest rates go up that will have an adverse affect on the housing market. House prices will start to go down and some people will find themselves with negative equity and maybe there will even be forced sellers.

So you if you are thinking of using the latest government help to buy scheme you may find yourself buying in at the top of the housing market and then watching your equity being eroded and your security threatened as interest rates rise. Is government really trying to help people or land them in financial difficulty?