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  • Christian Armbruester

Circle of Life

Maybe it’s a cultural thing, but for some reason mortgages in the UK tend to be fixed for much shorter terms than in the US or the Continent. That works well when the yield curve is upward-sloping and follows the “Liquidity Preference Theory,” but considerably less well when it is inverted. Then there is the quantum of change. It’s one thing if your borrowing costs go up over time, but a 5% increase in the lending rate in a mere 18 months is quite another.

Is the UK about to implode in a perfect storm of high debt, global catastrophe and political ineptness? Maybe, but much of that is true for the rest of the world as well. To be clear, the UK does seem a bit worse off than elsewhere. The elephant in the room is Brexit, but no one really cares anymore that Boris has finally left the building. One should also never underestimate the irrationality of human behaviour and who knows what a Labour government may bring.

Older readers will always point out that in the eighties, mortgage rates were much higher and life still went on. True, but we have a lot more debt now. Going cold turkey after 15 years of living on cheap money was always going to be ugly. However, it is only when people finally stop splurging on festivals, holidays and gaming, that inflation will fall, the government will once again bail us out, and long live spending money we don’t really have.


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