January 29th, 2020
Lower mortgage rates lead to higher birth rates!
A report from the Bank of England indicates that when mortgage rates drop, birth rates rise.
The working paper, called ‘Monetary policy and birth rates: the effect of mortgage rate pass-through on fertility’ by Fergus Cumming and Lisa Dettling investigated the influence a mortgage rate reduction has on the number of pregnancies in the UK.
Cumming and Dettling’s report demonstrates that a 1% fall in the monetary policy rate (which on average equates to a 12% reduction in the cost of mortgage payments) typically leads to a 2% increase in the UK birth rate and this figure increases to 5% amongst homes where the mortgage is on an adjustable rate.
It also found that when the Bank of England lowered its policy rate by 4.5% between 2008 and 2009, it affected family planning decisions over the next three years, and increased birth rates by 7.5% in that time.
The report indicates that one reason that there may be a relationship between a fall in interest rates and a rise in birth rates is that a considerable number of mortgages in the UK are on adjustable rates whereas borrowers in the US, France and Germany are tied into longer fixed term deals.
The reason being that the variance to mortgage rates has an instantaneous effect on homeowners’ finances.
Cumming & Dettling finish “short-term fluctuations in birth rates can also have important effects on the economy.
Families who move forward with their child-bearing plans will also move forward any associated consumer spending.
And year-to-year fluctuations in cohorts and class sizes can have important implications for educational attainment and future labor market outcomes.
Overall, our paper suggests monetary policy can have spillover effects on a host of economic and social outcomes.”
Low interest rates
Whilst the interest rates remain low, it is a good idea to review your mortgage and see if you can lock into a rate to help you budget more easily and be secure in the knowledge that you know what your mortgage rate will be for a period of time.
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Written by: Kay Crooke – Associate Practice Director, Prosser Knowles Associates Limited