Bank of England: Lower Interest Rates Means Higher Birthrates For Homeowners

Research by the UK’s central bank on how monetary policy impacts household decisions has found a link between interest rates and fertility, with homeowners on tracker mortgages much more likely to have children when rates fall.

There were an additional 14,500 children born in Britain in the wake of the 2008 financial crisis, the research has found, in a development which bucked the trend of other crash-hit countries where fertility fell in line with rising unemployment.

Analysis by Bank of England staff found that while fertility in the UK did fall immediately after the crash, this was reversed when the bank decided to make significant cuts to the baseline interest rate, making borrowing money cheaper. The important impact of this decision was on households who already owned homes with mortgages and whose monthly payments could rise or fall depending on what the central bank rate was.

Because those families suddenly found themselves with more money, they found themselves able to have larger families, or able to start one in the first place, the research suggests.

Looking back on the figures from the post-crash years, the Bank found for every per cent the baseline interest rate was reduced by, mortgage repayments fell by 12 per cent, which in turn increased the national fertility rate by two per cent.

In other words, cutting interest rates by four and a half per cent in 2008 and 2009 reduced the annual repayments of those on variable rate mortgages by something like £4,000 a year. This impact is most clear among those on adjustable-rate mortgages, those enjoying the greatest benefit — their fertility increased by five per cent for every one per cent cut in interest rates, much higher than the national average.

The Bank estimates that by slashing interest rates in 2008 and 2009, an additional 14,500 babies were born in 2009 alone and fertility rose 7.5 per cent nationwide over the following three years. The study did not consider additional births beyond this point.

What perhaps is most remarkable is the impact of lower interest rates on family decisions was so great it managed to outweigh other macro-economic events like the recession, which reduced birthrates elsewhere in the world as unemployment rose. The Bank said in their report: “the fertility stimulus effects of UK monetary policy were sufficiently large to outweigh the headwinds of the recession.”

In this respect, the UK contrasts with the U.S. where fertility fell as unemployment rose following the recession.

Despite the good news revealed by the Bank of England report, the outlook for fertility and births in the United Kingdom remains bleak. Deaths of those born in the United Kingdom is now higher than births of those to British-born mothers, and yet the population continues to rise steeply thanks to high levels of immigration.

The population of the United Kingdom is estimated to hit 70 million souls in a decade, yet three-quarters of the growth is expected to be driven by immigrants, not those British born. In 2018, a third of all births in the UK were to migrant-born mothers. One study suggests that 82 per cent of all population growth in the United Kingdom this century so far is down to immigration-related factors.

The low levels of birth rates, coupled with a growing population driven by mass migration is not a phenomenon unique to the United Kingdom, however. Not a single country in the European Union has a fertility rate of 2.1, the so-called replacement rate where two adults have two children, with some seeing levels as low as 1.3 births per couple.