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Chart of the month

What mortgage credit boom?

The UK may be the first G7 nation to raise interest rates from the virtual zero level established over five years ago to counter the Great Recession. (The G7 is the “Group of Seven” so-called “advanced nations”, i.e., the USA, Japan, Germany, the UK, France, Italy and Canada. Note that Canada is an exception, in that short-term interest rates never dropped to zero.) Deputy Governor Sir Jon Cunliffe has expressed concerns that action is needed to slow down the rise in house prices, which he believes poses a serious risk to the recovery.

But what is the evidence of a sustained nationwide housing boom? While foreign cash has been pouring into the London property market and thus significantly raising house prices in the capital, official data show that mortgage lending is subdued. The chart below summarizes the position, giving the annual change in the stock of secured lending to individuals and housing associations (i.e., mortgage lending, more or less) for the last 20 years. The stock of mortgage debt is indeed growing, but only by about 1% a year, plainly not a boom rate. As the chart demonstrates, this is less than in the 1990s and much less than in the final years of the Blair premiership (i.e., between 2003 and 2007).


Tim Congdon, Economic research, macroeconomic forecasting

Contact address: International Monetary Research Ltd., Huntley Manor, Huntley, Gloucestershire GL19 3HQ
enquiries@imr-ltd.com

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