Mortgage interest rates
Over the last few years homeowners have been enjoying some of the lowest mortgage interest rates since the 1960s. Back then average mortgage rates were around 5% - 6%, until the mini housing boom of the late 1960s got underway. This was the start of the present boom & bust cycles that seem to be affecting the UK housing market; the very same cycle that the present UK government are trying to smooth out.
Pre 1960, mortgage rates going back to the mid 1800s were fairly stable. Yes, there were fluctuations but not even two world wars and their after effects could create the level of instability that we have observed since the late 1960s. Mortgage rates during the 1920s and 1930s between the wars were exceptionally stable, remaining at around 4.5% for much of the time.
Mortgage interest rates cycles
The first boom-bust cycle of the modern era began in the late 1960s. Between 1964 and 1969 the mortgage rates erratically crept upwards, reaching a plateau at the height of the hippie movement. A dip then ensued at the beginning of 1970s - that is until 1973 when the first major boom hit. Mortgage rates then climbed to above 10% for the first time in recorded history and stayed at that level between 1973 and 1976. The increased rates coincided with the highest inflation ever known in the housing market, where the value of property rose by more than 40% per annum.
1977 and 1978 saw a sharp fall in mortgage rates at the end of Labour's last pre-1997reign in government. 1979 and the new conservative government saw mortgage rates climb to record highs. By 1980 many mortgage lenders were offering interest rates of around 15%.
Between 1980 and early 1988 mortgage interest rates were volatile, although the underlying trend was one of slow decline. For instance between Q3 and Q4 in 1981, interest rates at some lenders rose by 2%. Mortgage lenders then cut interest rates by 5% over the following year, only for the interest rates to rise again by 4% to 14.0% in 1985. This was the high point of volatility as the interest rates fell again down to around 10% by mid 1988 - the start of the biggest boom-bust occurrence in UK history.
Mortgage interest rates - 1988 to the present day
From 10% in mid 1988 the interest rates rose to 14.5% by the end of 1989. Up to this point house prices were in the ascendancy, but into 1990 house prices started to crash while interest rates climbed further to 15.5% at some lenders. By the end of 1990 house prices were in freefall and mortgage rates were on the way down too.
Mortgage rates then continued to fall until 1996. They stabilised at this point, even recovering for a little while through 1997, before falling again to record lows in 2001. Since March 2001 the typical mortgage interest rates on a standard variable rates product have stood at 6.75% or below with forecasts suggesting stability for the foreseeable future.