Whatever the case, with prospects for interest rates to fall much further very limited, housing is likely to experience some “decapitalisation” over the coming decades even if monetary policy is tightened only gradually

UK households are currently indebted to the tune of around 135% of annual incomes, a level of debt which has the potential to accelerate and amplify shocks through the economic and financial systems, if there were to be a sharp rise in interest rates.

An interest rate hike is usually the result of a rise in inflation, which can be caused by a number of different events or economic pressures. The most likely spark for a more inflationary environment in the UK currently is Brexit, where if no deal is reached the Bank of England is predicting a sharply lower sterling and therefore higher inflation.

To put the UK’s position into perspective, the graph below shows the UK in comparison to its US counterparts. Household indebtedness has been on a rollercoaster ride over the last 30 years in both the UK and the US. The booms in the housing market in the late 1980s, and especially in the 2000s, have left UK households far more indebted than their American cousins. For example, in the late 1990s UK and US households had debt levels similar to one another at just under 100% of aggregate incomes. While the US is not far above those levels right now and the UK remains much higher.