The Treasury's thinking on how the UK's housing market could affect the UK decision on EMU had already been widely trailed through the Budget announcements of reviews of the market for long-term fixed-rate mortgages (by David Miles) and housing supply (by Kate Barker). So it was not surprising that these were major themes in the background study published by the Treasury on housing, consumption and EMU.
But the Treasury study points out that across the Eurozone, significant divergence remains in national housing markets, and looks set to continue. The fact that the UK housing and mortgage markets differ from their European counterparts is not, in itself, a problem. What is significant is simply that the UK's own economy could be affected to a greater degree because consumer spending is closely tied up with the housing market, which is sensitive to interest rate movements because most mortgages are at variable rates.
Michael Coogan, Director General of the Council of Mortgage Lenders, commented: "The Chancellor cited the housing market as a reason to delay any recommendation for UK entry to EMU. The CML believes that the UK mortgage market is sufficiently sophisticated and flexible to thrive either inside or outside the euro environment. UK mortgage borrowers are already extremely well-served. Despite the fact that base rates in the eurozone are lower, the UK has lower mortgage rates than the majority of euro countries.
"Perhaps the importance of the structural differences in the UK housing market is being a little over-stated - one thing that is abundantly clear is that housing markets across Europe remain massively divergent for a variety of reasons.
"It is helpful that the euro dimension to the review of fixed-rate mortgages should now become less pronounced, so that the relative merits of long-term fixed rates can now be explored outside the immediate politics of the euro debate."