Think you have the horse before the cart.
Loose lending got people into homes they couldn't afford. Artificially low interest rates got people into homes they now can't afford.
People will borrow up to the max that they are allowed, they're not interested in stress testing their own mortgage. Politically it's beneficial to have people owning their own homes and an endless rising market. It makes the electorate feel good, increases their wealth via no effort whatsoever (thin air), facilitates MEW for lots of consumer economy spending.
The problem is (artificially) low interest rates put people's mortgages and in turn the banks balance sheets on life support (they're the one holding the real estate baby, ultimately). Nothing was allowed to fail. The pumped liquidity and zero interest rates encouraged even more lending and search for return and pumped up asset bubbles. Now everything, countries, companies and people are in a debt hole that are now vunerable to these kind of market forces. Interest rates are now pretty much in a range that previous common consensus WAS where they should be 4-5%. Low interest rates have become normalised BUT provide no downward wriggle room. For rates to go to 4% and catastrophe looms shows how bad the problem is.
The other problem facing the government is that 'not allowed to fail' landscape has filtered down to the general public. A combination of the government's bail out of the banks (and other companies) and the policy of loans, grants, handouts during the pandemic and beyond (some worthy/essential I may add)., has defaulted the government as lender of last resort. And let's face it it's not their money it'll all have to come from the taxpayer (eventually
). Market forces have to be allowed to direct and shake out the system, otherwise capitalism is dead (it probably is in it's current guise anyway). There's always winners and losers.
And on that note please remember
@Gutter Boy and
@Rorschach there is two sides to the interest rate story, if you are to look at the interest rate to inflation overlay chart it has made tinkle poor reading for years for any savers. Should interest rates be kept at 2% while inflation erodes their wealth at 10%?
It's a fair question.