Fixed Rate Mortgages and Public Housing: How Nations Respond Following Housing Crises

Abstract

This study looks to investigate the impact that housing crises have on the decisions made by nations. Specifically, this study examines the actions made by the United States and United Kingdom following a housing crisis. Observing the high variable interest rates on mortgages in the United Kingdom currently, this study is important because it analyzes why the U.K. never changed their mortgage lending practices. Following the Great Depression in the United States and World War II in the United States, both nations were faced with a housing crisis. I aim to answer the question: Why did the United States primarily utilize long-term, fixed interest rate mortgages following the Great Depression, while the United Kingdom continued lending variable rate mortgages following World War II? I analyzed the United States and the United Kingdom during and after their respective crises to ensure they were adequate comparisons. In doing so, I explored the economic struggles faced, as well as the problems in each country. Furthermore, I inspected the mortgage and housing histories of the United States and United Kingdom to understand their circumstances before a crisis had occurred. In my research, I examined the individual governmental acts following each country's respective housing crisis. Furthermore, I dug deeper into the Congressional and Parliamentary hearings, debates, and speeches surrounding the mentioned Acts. In the United States, the sentiment and goals of the President played an important role in the steps that were taken. Additionally, I looked through some historical newspapers in each country to see if the public had any contribution to the actions taken by their respective governments. The major themes in the United States were the promotion of homeownership and the stability and predictability of both lenders and borrowers in the mortgage market. In the United Kingdom, the prominent theme was providing homes to those who were in need. Through my research and analysis, I find that the reason for different paths taken by the United States and United Kingdom is due to the contradicting features of each country's respective housing crisis. In the United States, the Great Depression was marked by mass amounts of foreclosures and defaulted mortgages. Therefore, the United States had a majority of the necessary housing infrastructure, but they needed the necessary tools for Americans to finance these homes. This led the U.S. government to develop their dominant mortgage product into a long-term, fixed rate, self-amortizing, low down payment mortgage. However, in the United Kingdom, World War II left homes destroyed or uninhabitable. This left the U.K. with no choice, in their opinion, than to provide new homes and public housing to their citizens. I find that in the United States, fixed rate mortgages allowed for more Americans to purchase homes, while also providing liquidity and stability within the mortgage market. Additionally, in the United Kingdom, their public housing plans put many U.K. citizens back into homes following the war’s destruction. Based on the U.S.’s success following the Depression, I recommend that now that the U.K. has the appropriate housing accommodations, they should shift toward fixed rate mortgages should another housing crisis occur. In the United States, I recommend the usage of public housing, while continuing to use fixed rate mortgages, should the nation face housing destruction similar to the United Kingdom.