– The essay MUST use the sources I am attaching, in addition to other reliable sources for empirical data that you can select as long as they’re reliable.
– The assignment question is : Question 1
In the UK the recent hike in interest rates has affected mortgage markets and the ability of households to afford
payments, with a consequent impact on house prices. Describe the relationship between interest rates, mortgage
market activity and house prices, and critically discuss what may happen over the next 1 to 3 years.
– The structure to be similar to the following (* structure recommendations are acceptable taking into consideration that it MUST use both theory and empirical in the essay ):
1- Introduction
2-The Relationship between Interest Rates and the Mortgage Market (theoretical), discussing the following:
– Theory of Interest Rates and the Economy
– The relationship between interest rates and economic activity with a focus on the housing market
– Mortgage Market Dynamics
– 4-Quadrant Model (4QM) – explain it and relate it to the dynamics mentioned in the sources I provided.
– Availability and affordability.
– Monetary policy
– Supply and demand
3- Interest Rates and Housing Affordability (theoretical)
Theories related to housing affordability and the effects of interest rates.
4- Impact of Raising Interest Rates on the UK Mortgage Market (empirical) including
– Overview of the UK interest rate trends historically.
– Interest Rate Hikes, when it started (2022,2021), what happened how much it increased, immediate reasons..etc
5- Impact on Mortgage Markets:
Trends in mortgage lending in relation to GDP
Shift towards more mortgage lending post-deregulation
Changes in mortgage approval rates and terms.
6- Effect on Household Affordability and Payment Ability (empirical)
– The effects on affordability and the response from government schemes
– The effect of increased interest rates on household budgets.
– Implications for first-time homebuyers and existing homeowners.
7- Effect on Housing Prices/ Impact on House Prices (empirical)
– Market Reactions: Look at changes in mortgage product development and bank behaviors post-GFC and post-hike
– House Prices and Market Activity: Discuss the relationship between rising interest rates, demand in asset and space markets, and house prices using 4QM
8- Future Projections (1 to 3 Years)
– Predictions for the Housing Market: Evaluate different potential scenarios based on current trends.
– Application of 4Q model to Current Market, impact of current trends on the model, and Predictions Based on 4QM
– Predictions based on the forecast of the bank of england
– Policy Implications: Discuss how policy measures like Help to Buy have evolved and their effectiveness in the context of rising interest rates (briefly)
– Critique of Market Responses: Assess the reactions of mortgage markets to interest rate changes using provided references
9-Conclusion
– The sources provided that must be incorporated into the essay are attached.
– This is a 3500 words essay. It should be written in Essay style please with Harvard formatting and citation style.
