White elephant Euronomics

Advocates of abolishing the Pound () for the Euro claim this will make lower mortgage rates available to borrowers in the UK.


On 28.5.98, Isabelle Murray examined claims in her "Murray's Mint" column in The Sun. "It is a myth that entry will bring cheaper mortgages", said Mike Lazenby, a director of Britain's top building society, the Nationwide.

"Our economy is fundamentally different from other European countries... ...There is nothing to say that joining EMU [the Euro] will push mortgages down to European levels - we could see them rise slightly in the short term".

We're Different In Britain...

Mr Lazenby explained that although our mortgage rate is currently linked to base rates it hasn't always been and there is no reason to suppose that it always will be. And the gap has been wider than 1% before.

He added that an average Briton aged 35 has bought and sold three times, whereas in Germany, he is still saving up to put a deposit on his first house.

"If people wanted cheaper mortgages here, they would have to save up huge deposits and tie themselves to long term mortgages".

...And More Flexible

Isabelle Murray added that British variable mortgage rates tend to be around 1% more than the base rate but in France and Germany they are twice the base rate. Britain offers more choice to suit individual borrowers:

On the continent, many mortgages are strictly regulated because they are subsidised by the government. Applicants with previous debt problems are very unlikely to get a loan. As lenders demand large deposits - typically 20-40% - many newlyweds are dependent on gifts from relatives and it takes longer for people to buy their first house.

What Might 'Harmonisation' Mean?
And EU membership brings the threat of VAT being levied; housing is currently zero-rated in the UK. In May 2001, European Commissioner Bolkestein reminded us that our VAT arrangements were only 'transitory' i.e. temporary.

2002 update on mortgage comparisons

In December 2001, the anti-Euro 'No' campaign reviewed mortgages across Europe in "UK mortgages and the Euro". (Remember at that time, the 12 national currencies had already become denominations of the Euro, with Greece joining the 11 in January 2001).

Research for the Halifax Group showed typical UK mortgages were again cheaper than 9 out of 14 elsewhere in the EU (and 8 out of the Euroland 12, although tiny Luxembourg was not covered). Spain & the Irish Republic (see previous section) were 0.7% and 0.48% cheaper, Portugal 0.2%. Belgium was 1.7% dearer at the other end.

The key point is that the UK economy has different economic cycles to the 'continental' economy, and the 'Euroland' interest rate is set in for the area as a whole - it would be very unlikely to coincide with our needs. Prof. Patrick Minford of Cardiff Business School calculated that joining the Euro would make interest rates four times as volatile, and increase the likelihood of 'boom & bust' by 75%. (See Telegraph, 12.9.01).

The experience of the Irish Republic & Greece has shown that artificially low interest rates cause overheating in the housing market (which can push up the cost of many mortgages). Demand rose by 160% in Greece during preparations to join the Euro.

And for the consequences of inappropriately high interest rates, we need look no further than home and the 1990s ERM fiasco, that led to one million people losing their homes. Once locked into the Euro, there would legally be no escape.

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Date this page compiled: 29 May 1998, updated: 5 September 2002