Mike Peacey, Post Graduate Research Student, Centre for Market and Public Organisation
It was the best of times. The UK economy was booming and mortgages could be taken out with a loan-to-value ratio (LTV) of 125%. It was the worst of times. The house price bubble had burst and inaugurated the worst financial crisis since 1929.
Fast forward five years and astonishingly the best of times seem to be coming back. Asset price inflation in the housing market is once again hitting the headlines. It’s no surprise that people want to get on the housing ladder after seeing how well their parents have done. The expectation that house prices will rise faster than other assets has been vindicated by decades of experience.
Many people hoped that the experience of the financial crisis might change these expectations, but recent events suggest this is wrong. Asset price bubbles present policy makers with politically difficult choices – particularly in the conduct of monetary policy.