Rob Thomas

Registered with
Wednesday 23rd August 2017

Latest Comments

Total Number of Property118 Comments: 107

Rob Thomas

15:18 PM, 14th July 2021, About 3 months ago

Why Mortgage Interest Rates WILL NOT Rise - UK Buy-to-let Mortgages

Hi Dylan

You're almost right. When the Bank of England (BoE) engages in QE it is buying gilts (govt debt) with newly created electronic money. For example, where it buys £1 billion of gilts from a pension fund (the most likely seller) it credits the pension fund's bank account at a commercial bank (say Barclays) with £1 billion.

If Barclays doesn't immediately lend this money to someone else it becomes part of Barclay's reserves at the BoE (deposits to you and me). The BoE has an extra £1 billion of assets (the gilts) and £1 billion of liabilities (the new Barclays reserves).

Commercial bank reserves at the BoE are remunerated at Bank Rate (currently 0.1%) so this isn't quite free money for the BoE (as you say it has to return the interest on the gilts to the Treasury so the assets earn it nothing but equally it means the Treasury is paying nothing on this debt as you say).

If the BoE decides to raise Bank Rate substantially in the future it will come with a cost of having to increase the amount it pays to commercial banks for their reserves. At that point the Treasury might have to reconsider clawing back the interest on the gilts to compensate the BoE for the cost of QE. So, for the govt as a whole (including the BoE), QE isn't entirely costless unless Bank Rate is 0%.... Read More

Rob Thomas

12:15 PM, 11th July 2021, About 3 months ago

Why Mortgage Interest Rates WILL NOT Rise - UK Buy-to-let Mortgages

Hi Ranjan

As a property investor and economist I enjoy watching your videos but I found this one unconvincing and indeed misleading.

Firstly, govt debt in the UK is, as you say, c.100% of GDP now but you state that govt debt to GDP "has never been that high". This is incorrect. At the end of WWII it was around 250% and didn't fall below 100% until 1962.

Your premise that govt can't push up interest rates because it wouldn't be able to afford the extra cost of funding it's debt is flawed not only because interest rates were raised at times after WWII when govt debt to GDP was much higher but also because the govt borrows almost entirely on a long term fixed rate basis through long term gilt issues. Therefore, a rise in short term interest rates doesn't directly increase the govt's cost of borrowing in a material way. Moreover, the Bank of England sets short term interest rates and it has a mandate to target 2% inflation so rising inflation is likely to provoke the Bank to raise Bank Rate (i.e. short term interest rates) if inflation looks like it will be above 2% on a sustained basis unless this mandate is changed.

You say that the fact that inflation hasn't risen significantly despite all the electronic money printing through QE is because every country is doing it. Although it is true that one country printing money alone is likely to put downward pressure on its exchange rate, risking higher import price inflation, your logic is incorrect. The reason massive money printing hasn't caused significant inflation across the developed world is that the velocity of circulation of money has fallen because of the situation created by the pandemic. As economies recover, central banks may well need to withdraw this "monetary overhang" through reverse QE and raising short term rates to avoid an overheating economy and rising inflation. Thus the threat of higher short term interest rates is real over the next few years.

You talk about Federal Reserve intervention in the US mortgage market. Firstly, you talk of a guy in Idaho with a Freddie Mac mortgage. This shows a lack of understanding of how the US mortgage market works. Freddie Mac (and Fannie Mae) do not make mortgage loans to consumers. They are mortgage funding institutions that provide lenders with the funding they need to make loans. You mention that the US Federal Reserve is buying US mortgage debt and if they raise interest rates it will cave in the securitised mortgage assets they have bought. Again, this is wrong because US consumers borrow overwhelming on a full term fixed rate basis (the most popular mortgage is the 30 year fixed rate mortgage where the interest rate can never rise). Less than 1% of US mortgage advances are now on a short term fixed rate basis (all the rest are full term fixed rate). Since the mortgage debt the Fed has bought is all on a full term fixed rate basis, it means the Fed can raise short term interest rates without impacting the mortgage payments of the borrowers whose mortgages they own or other existing US mortgage borrowers.

If you don't mind me saying, it seems to me that in your case a little bit of knowledge is a dangerous thing because you are drawing conclusions about where short term interest rates might go and providing comfort to property investors based on a false understanding of the economy.... Read More

Rob Thomas

11:56 AM, 2nd January 2021, About 10 months ago

Difficulties with national agent paying across 6 months upfront rent?

It always surprises me that any landlord would let a letting agent pay rent into their bank account first. On the few occasions I have used a letting agent I have always insisted that the rent is paid directly to my bank account. It's your money.... Read More

Rob Thomas

11:35 AM, 20th October 2020, About A year ago

How to prepare for the 2021 Property Market Crash

Reply to the comment left by david porter at 20/10/2020 - 11:13
As a professional mortgage consultant and form banking analyst I can say that you really do not understand this subject. Most UK mortgage lending is funded from retail deposits and because of bank ring-fencing requirements, banks have an unusually large amount of funding to lend to areas like residential mortgages at the moment.

The securitisation markets are also open for those lenders (mainly the specialist lenders) that rely on this form of funding. Oh and by the way, Northern Rock did heavily use the securitisation market. It was the closure of that market in summer 2007 that ensured that they did not have the funds to continue without government support. Not sure what you mean by 'not bust in their day-to-day business' - if you run out of money to pay creditors when due you are facing insolvency.... Read More

Rob Thomas

9:24 AM, 19th October 2020, About A year ago

How to prepare for the 2021 Property Market Crash

I agree with Jesse Jones

Rising unemployment doesn't necessarily mean falling house prices. You also need to look at how monetary conditions have changed. Interest rates are lower across the yield curve (i.e. both short and long term interest rates) and the money supply has increased sharply. For example, the total level of retail deposits in the UK increased by £169 billion between February and August. That's nearly 10% up and £2,500 for every man, woman and child in the country.

So when the average family of 4 have seen their balance balance rise by £10,000 it suggests there's more money ready to be deployed in the housing market.... Read More