U.K. House-Price Gains Explained By Low Interest Rates Alone
- BOE research by Miles, Monro points to risk-free interest rate
- Analysis published on Bank of England staff blog Monday
Rows of houses are seen between trees in Chafford Hundred.
Photographer: Chris Ratcliffe/Bloomberg
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The rapid gains in U.K. house prices can be explained entirely by the drop in risk-free interest rates, Bank of England research shows.
A paper by David Miles, a former rate-setter at the bank, and Victoria Monro concludes that other, often-cited reasons for real home values almost quadrupling over the past four decades -- low housing supply, financial deregulation or bubble-like behavior -- play little to no role. The risk-free rate is the inflation-adjusted yield on loans that are guaranteed to be repaid, such as government bonds.