The 2007 financial crisis and the UK residential housing market: Did the relationship between interest rates and house prices change?

Chin-Bun Tse, Timothy Rodgers, Jacek Niklewski

    Research output: Contribution to journalArticle

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    Abstract

    This paper investigates the impact of the 2007 financial crisis on the relationship between real mortgage interest rates and real house prices. It applies a dynamic conditional correlation based methodology that uses fractionally differenced data along with controls for structural breaks and non-interest-rate related factors that influence house prices. The key finding made is that the financial crisis had a long-term structural impact on the monetary transmission relationship. For example, we find that the mean conditional correlation between house prices in England and Wales and the three-year fixed mortgage rate rose by 6.6 percentage points. Similarly, the mean correlation between prices and the standard variable mortgage rate increased 6.4 percentage points to 54%. These findings suggest to us that interest-rate-based monetary policy still has an important role to play in the housing market.
    Original languageEnglish
    Pages (from-to)518-530
    Number of pages13
    JournalEconomic Modelling
    Volume37
    DOIs
    Publication statusPublished - 2014

    Fingerprint

    House prices
    Price changes
    Interest rates
    Financial crisis
    Housing market
    Mortgage rates
    Structural breaks
    Methodology
    Monetary transmission
    Influence factors
    Monetary policy
    Conditional correlation
    Wales
    Dynamic conditional correlation
    England
    Mortgages

    Keywords

    • Financial crisis
    • Residential housing market
    • Conditional correlation
    • Transmission mechanism

    Cite this

    The 2007 financial crisis and the UK residential housing market : Did the relationship between interest rates and house prices change? / Tse, Chin-Bun; Rodgers, Timothy; Niklewski, Jacek.

    In: Economic Modelling, Vol. 37, 2014, p. 518-530.

    Research output: Contribution to journalArticle

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