Mortgages and housing affordability: analytical note
Increasing housing affordability is one of the top-priority objectives of social and economic development. Lowering mortgage rates is often seen as the ultimate solution. However, according to the analytical note ‘Mortgages and housing affordability’, it is high and steady growth of household income, outpacing the growth of house prices, that should become the main driver behind the increase in housing affordability.
According to the authors, there is room for lowering mortgage interest rates. One of the ways is the partial funding of interest payments at the expense of the budget through various benefit programmes. This measure will increase the affordability of mortgages without any negative consequences for price or financial stability.
However, mortgages alone cannot make housing affordable. The experience of many countries shows that excessive lowering of interest rates brings opposite results: higher house prices and lower affordability.
The authors of the paper indicate that housing may become more affordable if construction costs go down. They also believe that the development of the secondary housing market and long-term rent may provide additional solutions to the housing issue.