In Iceland, we can't include housing in the calculation, become the vast majority of mortgages are inflation linked; meaning if inflation goes up, so does the remaining capital on your mortgage (yes, it's insane, if you want to know more there's articles online about it).
If we included housing, it would push up mortgages, which would make housing more expensive, which would drive inflation, which would push up mortgages, and so on.
Meanwhile my UK mortgage has 1.6% interest rate, and my house has gone up in value by 100k since I bought it 18 months ago, and I've just received a raise specifically to adjust for increased market rates and inflation. Life's pretty sweet here in comparison to back home. Needless to say; not going back :)
Can you recommend a good article about how this works?
It sounds evil at first glance, but thinking about it some more it might be very good.
This discourages people from buying houses with leverage when they think inflation is going to accelerate. It won't help them, because the leverage is inflation-indexed! Here in the USA, every time inflation starts to accelerate people hoard housing; this causes all sorts of social problems.
Also: in the USA the only other ways for most ordinary people to easily hedge against inflation are buying gold or loaning money to the government (inflation-indexed government bonds). It sounds like your country has inflation-indexed mortgage bonds. I would rather lend money to my neighbor than my government.
Personally, I am incredibly impressed with how you guys dealt with the 2007 global financial crisis. You did the right thing: you threw the criminals in jail. Even though they were bankers. I now evaluate Iceland's economic policies from the starting assumption that they understand the world better than we do.
Your mortgages are inflation adjusted? That's completely nuts, if you pay the interest only on your loan it keeps growing to reflect inflation; nice! :-)
> my house has gone up in value by 100k since I bought it 18 months ago
Yikes, that sounds like a heated housing market, unless your house cost £ 20 million to begin with :-)
If we included housing, it would push up mortgages, which would make housing more expensive, which would drive inflation, which would push up mortgages, and so on.
Meanwhile my UK mortgage has 1.6% interest rate, and my house has gone up in value by 100k since I bought it 18 months ago, and I've just received a raise specifically to adjust for increased market rates and inflation. Life's pretty sweet here in comparison to back home. Needless to say; not going back :)