U.K. households’ high debt levels relative to borrowers in other countries such as Germany are justified because the structure of Britain’s housing market makes it reasonable to borrow, UBS AG economist Amit Kara said.
Britons’ total household debt is about 110 percent of gross domestic product, “well above” levels for other countries, and the “overwhelming share” is mortgage borrowing, Kara wrote in a research note today. The U.K. home-ownership rate is about 70 percent, compared with about 40 percent in Germany.
U.K. households borrow to ensure they can live rent-free in retirement, Kara wrote. People in other countries such as Germany don’t do this because they tend to bet their pension income will be enough to pay rent once they stop working. They also benefit from measures such as rent controls, he said.
“The U.K. household is anything but crazy” to have such high borrowing levels, Kara wrote. “By buying a home, the household is protecting itself from any mismatch between its pension income and rent payments; the household is, in other words, behaving prudently.”
SS
THIS GUY IS A FOOL
UK HOUSING IS A MASSIVE BUBBLE THAT WILL BURST SOON
LETS SEE WHAT HE HAS TO SAY IN 2016 OR SO
I THINK UK HOUSING WILL CRASH BY 50%
To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net
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