Nearly 5 yrs ago we reported the Bank for International Settlements was warning about the risks of ultra-low interest rates becoming a permanent feature rather than a temporary emergency fix. The politicians have not been listening. Here’s BIS latest take on the impact ultra-low rates are having on the housing market:-
“Some households stand to gain from low mortgage rates, but this benefit will accrue only to those who can afford to buy a house. Moreover, the positive effect of low mortgage loan rates is largely offset by the increase in property prices fuelled by ultra-low interest rates.”
So why is there no political pressure to normalise rates as a means of returning the housing market to health? Here’s the answer – BIS says that in 2007 UK government debt was 45% of GDP. It is now 97%. With government borrowed up to the hilt its hardly surprising that politicians want rates kept low.
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