Interest rise might mark a slow, welcome return to economic normality and at last give some hope to savers

The Bank of England (BoE) has for over a decade faced a delicate balancing act on interest rates.

Rates have been abnormally low since the financial crisis that followed the 2007 property boom.

The reasons for the crisis were global and complex but in one respect quite simple — too many people in too many places took on too much borrowing in order to pay over-inflated prices for assets, above all housing, leading ultimately to an almost inevitable collapse.

If any part of the developed world should be intimately familiar with that dreadful story it is Northern Ireland. Like the Republic, it had one of the biggest housing booms in the West followed by one of the biggest crunches.

A News Letter analysis of that crash looked at various house price surveys and concluded that the average peak-to-trough fall was 58%. Thus homeowners who thought in 2007 that their property was worth £500,000 typically found within a few years it was worth around £210,000. Those who thought they had a £200k home soon found it valued around £84k.

Ultra low interest rates were introduced after the collapse because so many people and businesses would have been unable to function otherwise.

The problem is that it has kept many asset prices artificially high for more than a decade. In Northern Ireland over the last year there has been sharp bidding on houses again.

In order to get on, or move up, the housing ladder, many buyers are having to take on worrying debt burdens. If interest rates rise, once again there will be home repossessions.

There is no easy way out of this. Ideally interest rates would rise slowly back to normal levels, avoiding a huge shock to the financial system. Yesterday’s slight BoE rise to 0.25% might be the start of this. Crazy house prices would be constrained, as would wider inflation.

And finally, after so long, prudent savers, who have since 2007 helped bail out sometimes profligate borrowers, would begin to get a fair return on their carefully amassed nest egg.

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