🧵RISING INTEREST RATES ARE A BIGGER DEAL THAN YOU MIGHT THINK🧵
This is important (hence the caps).
I’m a bit worried people are being WAY too complacent about rising interest rates.
They assume that because they’re so low now vs the 1990s, this’ll be a walk in the park.
NO.
Let’s start with this chart. Outlook for interest rates has changed enormously in the past few months. Back at the start of the year they weren’t expected to get much above 1.5%.
By Aug they were expected to peak at 2.75%.
Now the expected peak is 4.75%.
BIG shift in a short time
Now the conventional wisdom about this is that while a rise in rates might be tough for some households, it’ll be nothing like what we experienced in the ‘70s, ‘80s or ‘90s.
After all, rates back then were in double digits.
Look at this chart:
In other words, the implication is that anyone who gets worried about 4.75% interest rates is an utter snowflake.
“When I were a lad interest rates were 15%” etc etc.
Right. But here’s the thing: interest rates are only one (quite misleading) part of the picture…
Because what’s really relevant here is how AFFORDABLE those interest rates are for mortgage holders.
What matters is not just the RATE but how much you’re borrowing and (equally important) how high your disposable income is vs those payments.
Add all those things to the equation - debt burdens, incomes, mortgage terms and mortgage rates - you end up with a very different picture.
Here’s data from @resi_analyst who’s worked out the “equivalent” interest rate - eg the actual BURDEN of interest rates over time.
So for instance, take 1980. Back then, official BoE interest rates were on average 14.2%.
But because people were much less heavily indebted, because their incomes were much higher vs their repayments, that was, in affordability terms, EQUIVALENT to 3% in today’s interest rates.
Look solely at those “equivalent” interest rates, adjusted for affordability.
V different picture, right?
Actually interest rates aren’t way lower than in the 1970s - they’re v similar.
An increase to 4.75% would take us up to levels similar to just before the financial crisis.
If rates went up to 6% (not currently forecast but these days who knows?!) it would be horrendous.
The mortgage burden would be very similar to the early 1990s - which precipitated the worst housing crash in modern history.
Prob even worse cos this data doesn’t adjust for MIRAS.
This is not a super complex lesson. It’s widely understood among housing specialists.
But I don’t think it’s fully appreciated in Westminster.
This matters because the impact of writing blank cheques and borrowing many billions is to put pressure on BoE to raise rates.
If you take interest rates at face value it’s easy to assume 4% is still a comparatively low level.
It’s easy to assume we can probably stomach 6% without too much pain, like we did in the early 2000s. It’s “nothing” compared to the 1980s.
But this is the wrong lesson.
More on this here. It’s a big deal.
The interest rates we’re currently heading for will be considerably more painful than the headline numbers might suggest.
NB not every household has a mortgage. But those who do may be in for a shock when they refix. news.sky.com/story/interest…
Traders are now pricing in UK interest rates to rise above 5.75%. This would be very VERY painful. More on why in this thread 👆
Blimey. Investors are now better on UK interest rates topping 6 per cent by the first half of next year. You can see the expectations rising literally by the minute…
Ugh. The number of households due to re-fix their mortgages will peak at the very moment when, if market curves are to be believed, BoE interest rates will rise to 6% or possibly beyond.
I know I keep repeating this but still: this is a very big deal.
Back when I began this thread (only last Thurs which already feels like a world away) 6% interest rates next yr seemed slightly far-fetched.
And no bad thing, because 6% would be hideously painful for many families (see 👆).
Today traders were betting on 6% rates next year.
Look:
NEW:
Moneyfacts says:
- avg 2yr fixed rate mortgage is now up to 6.07% (was 2.25% a year ago)
- avg 5yr rate up to 5.97% (was 2.55% a year ago)
Highest mortgage rates since 2008.
But that’s understating how painful these rates will feel for people (for all the reasons above👆)
Let’s put this into perspective.
This chart shows you the avg monthly cost of repaying a mortgages (as a % of income)
With mortgage rates at 6%, they go up from 18% to 27%.
Highest mortgage burden since 1989.
This is not a projection: for those fixing mortgages now it’s a reality
Worth saying: this is not a “new” concern that’s cropped up after the mini Budget.
Many in the housing industry (inc @resi_analyst who did lots of the sums for the charts above) have been warning about the disproportionate impact of even slightly higher rates for a long time.
• • •
Missing some Tweet in this thread? You can try to
force a refresh
🚨
The Chinese owners of British Steel say they are now considering shutting their blast furnaces and end steelmaking at Scunthorpe in early June - only a few months away.
It would mean an end of virgin steelmaking in the country that invented it during the industrial revolution
British Steel say the main question now is timing: whether the operations will close in June, in September or later.
It says tariffs are one of the reasons the blast furnaces are "no longer financially sustainable".
Press release 👇
The news means @jreynoldsMP faces two interlocking crises in the coming months: 1. The imposition of US tariffs on an ever growing segment of British exports 2. The end of virgin steelmaking (the UK would be the first G7 country to face this watershed moment).
This is big stuff
Donald Trump just announced 25% tariffs on anyone importing oil from Venezuela.
This is odd.
Because the country importing the most crude from Venezuela is... the US.
Capital Economics chart of Ven oil exports by Capital Economics via @rbrtrmstrng
But it raises a bigger point
🧵
Why does the US import so much oil from Venezuela?
Mainly for the same reason it imports so much oil from Canada.
And no it's not just because they're close.
It's because most US refineries are set up to refine the kind of oil they have in Venezuela and Canada.
To understand this it helps to recall that crude oil is actually a broad term. There are LOTS of different varieties of crude - a function of the geology of where the oil formed and the organic ingredients that went into it millions of years ago.
It's called "crude" for a reason
🚨
Here's a thread about ALUMINIUM.
Why this commonplace metal is actually pretty extraordinary.
How the process of making it is a modern miracle...
... which also teaches you some profound lessons about the trade war being waged by Donald Trump. And why it might be doomed.
🧵
Aluminium is totally amazing.
It's strong but also very light, as metals go.
Essentially rust proof, highly electrically conductive. It is one of the foundations of modern civilisation.
No aluminium: no planes, no electricity grids.
A very different world.
Yet, commonplace as it is today, up until the 19th century no one had even set eyes on aluminium. Unlike most other major metals we didn't work out how to refine it until surprisingly recently.
The upshot is it used to be VERY precious. More than gold!
🚨TARIFFS🚨
Here's a story that tells you lots about the reality of tariffs both for those paying them & those hoping to benefit from them.
A story of ships, storms, bad luck and bad policy.
It begins a week and a bit ago, with a man frantically refreshing his web browser...
🧵
That man is Liam Bates.
He runs the UK unit of a steel company called Marcegaglia. They make stainless steel - one of the most important varieties of this important alloy. The method of making it was invented in Sheffield. And this company traces its DNA back to that invention.
Watching the process is TOTALLY amazing.
They tip a massive amount of scrap: old car parts, sinks etc, into a kind of cauldron and then lower big glowing electrodes into it.
Then flip the switch.
⚡️Cue a massive thunder sound as a controlled lightning storm erupts inside it.
🧵Three years ago, when Russia invaded Ukraine, EU, UK and other nations vowed to wage economic war, via the toughest sanctions in history.
So... how's that going?
We've spent months documenting what ACTUALLY happened. Here's a thread of threads on the REAL story on sanctions...
1. Flows of dual use items, including radar parts, drone components and other parts used by Russia to kill Ukrainians, carried on from the UK and Europe to Russia, via the backdoor (eg the Caucasus & Central Asia)
2. Of all the goods sent by the UK to Russian neighbours, few were as significant as luxury cars.
Having sanctioned Russia (the idea being to starve Putin's cronies of luxuries) Britain (and Europe more widely) began sending those sanctioned cars in via the backdoor instead
If the main thing the US really wants out of a deal with Ukraine is "50% of its rare earth minerals" then I'm surprised this can't be wrapped up pretty quickly.
Why? Because Ukraine doesn't HAVE many rare earth resources.
Really. As far as anyone knows it's got barely any...
Yes, Ukraine has lots of coal and iron and manganese.
It also has some potential sizeable reserves of stuff like titanium, graphite and lithium. Not to mention some promising shale gas.
But of the 109 deposits identified by KSE only 3 are rare earth elements
Now in one respect I'm making a pedantic point: a lot of people say "rare earth elements" when they actually mean "critical minerals".
The two aren't the same thing.
Rare earth elements are a v specific bit of the periodic table: actually they're NOT all that rare.
More on them👇