It’s said that the last housing crash in the UK, 1990-1995, was due to two main factors- low employment and record high interest rates. If people aren’t employed and interest rates are high, how will people buy houses or pay their mortgage? They can’t.
I was specifically interested in how the Bank of England Base rate affects the national stats for housing prices. I’m sure there are loads of other complicated factors that affect house prices, but I think it’s fair to say that interest rates is one of the heavyweight contender’s. Why? Because interest rates determine how much money we will have to spend on a monthly basis on our mortgage.
I’ve plotted two sets of data into one graph to view the correlations. The red line is showing the Bank Of England base rate from 1985-2007 and the yellow line is showing the average house price in the UK, 1985-2007, according to Nationwide, one of the UK’s leading mortgage lenders. Nationwide get their data from the amount of mortgages they approve.