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House prices in uk

Paper Type: Free Essay Subject: Housing
Wordcount: 2218 words Published: 1st Jan 2015

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According to a new study from Halifax one of the largest mortgage lenders. House prices in UK have beaten inflation over the past 50 years. It says that have risen 273% between 1959 and 2009 an average of 2.7% annually. But if measured by current prices, it’s uneven. The fastest growth was from 1999 to 2009 by 5% and in previous decade i.e. from 1989 and 1999, price fall by 24%. The rising price was on these years i.e. 1971-73, 1977-80, 1985-89 and the highest price was in 1998 and 2007.

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The study also noted that coincided with a very strong increase in owner occupation of homes. In 1961, only 43% of households owned the homes in which they lived by 2008 that had risen to 68%. The strongest rise in owner occupation rates occurred in the 1980’s. The proportion that is privately rented also fell sharply over the past 50 years from 33% in 1961 to 14% in 2008.

www.ft.com cited on 21/02/10.

Demand And Supply Of Housing

The comparison of prices in local and regional housing markets is an example of microeconomics. Let’s see the interaction between buyer and seller with prices being offered and agreed before a final transaction is made.

The transaction for house in UK depends upon

a) The price that the seller is willing to agree for their property with prospective buyer.

b) The actual price that the buyer is willing and able to pay.

Buyers place offers for a property that the seller can either accept or reject.

A Sellers Market

When there is demand in a market for housing and short of good quality property i.e. means the supply is scarce.

A Buyers Market

When demand for good quality and bad quality property is weak than there should some offer or can negotiate the price than its published price.

When the demand for houses in a particular area increases (perhaps because of an inflow of population into the area, or a rise in incomes following a fall in unemployment), there is upward pressure on market prices.

Often the supply of available housing in the market is relatively inelastic. This is because there are time lags between a change in price and an increase in the supply of new properties becoming available, or other homeowners deciding to put their properties onto the market.

When demand shifts outwards and supply is inelastic the result is a large rise in market price and a relatively small expansion of the quantity of houses traded. As supply becomes more elastic over time, assuming the conditions of demand remain unchanged, we expect to see downward pressure on prices and a further increase in the equilibrium quantity of houses bought and sold.

Factors affecting housing price

1. Growth of real incomes

Privately owned housing is a normal good for most people. As standard of living rise, the demand for house expands.

2. Consumer confidence

Consumer has a vital role in the housing sector. When the economy is sustaining growth and rising property than its but natural that the number of house buyers and shifts the balance of power in the market.

3. Jobs

The other factor is job. if it involves making a long-term commitment through a mortgage lender, changes in unemployment. If there’s unemployment and average incomes are likely to be lower than confidence among buyers would affect.

4. Housing taxes and subsidies.

Government policies, taxes and subsidies also affect the housing prices.

Demand factors affecting house price


1. 2012 London Olympics May Help UK Economy

Britain’s recovery can be done because of the infrastructure projects for 2012 London Olympics. Total spending is estimated for 2012 £9.3 (US$13.8) billion.

There will be two major beneficiaries of the 2012 games:

London’s crumbling mass transport system;

East London, where the Olympic Stadium, the Olympic Village and other major facilities will be located.

To accommodate the number of people in a city, the improvement is going on for transport of London upgrading to the London over ground. The Olympic delivery authority has given £3.1bn for the construction of the Olympic park. The budget for this is £1 billion for the Olympic village, and £400 million for the media centre.

This will benefit to the housing sector in UK. The more people going to accommodate in this country the space to live .That would benefit the housing sector of UK.

http://www.financemarkets.co.uk/ cited on 15/02/10

2. UK Mortgage Supply Crash

A loan to finance the purchase of real estates, usually with specified payment and interest rates. The borrower (mortgagor) gives the lender (mortgagee) a lien on the property as collateral for the loan.


The data collected by British Bankers of Association is that the no of mortgages approved for purchase of house was 17,773 against 64,014 in July, 2007 a fall of 72%.

The mortgage market clearly remains as extreme preventive measures are taken due to the collapse of Britain’s mortgage banks.

The supply has fallen so the average value of loan offered for house purchases which peaked at £159,600 in June 2007, and now averages at just £116,700. Home owners imagining that equity of 25% despite the fall in house prices to date may in fact on attempting to remortgage find that remortgage purposes and hence not offered any loan at favorable interest rates.

The interest rate cut from 5% straight to 2% in 2 months and £600billion bank bailout package. The net effect to this area was total amount of mortgage loans were outstanding the amount was £35billion, against to a stable market.

And in 2009 the house price rose by 2.9% says government. But the data of nationwide and Halifax says that UK house price rose by 6%nearly. The fastest growth was in 2009 went up by 4.9%.

http://www.independent.co.uk/ cited on 16/02/10

Repossessions – Extreme Government Pressure

In an attempt to limit the number of repossessions during 2009, the government is putting extreme pressure on the mortgage banks to ensure repossessions are a last resort. Up until September 2008 this amounted mostly to hot air from the politicians, however after having taken major stakes in most of Britain’s biggest banks there are strong signs that the banks are starting to comply with their new majority shareholder’s wishes (the government), that look set to increasingly introduce initiatives to reduce the number of repossessions. The most recent action on this front was by RBS which stated that it would give a 6 month reprieve to its mortgage customers that are in arrears before initiating court repossession orders.

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Whilst the measures will undoubtedly mean that less homes will now be repossessed than would have otherwise been the case, however it does act as a two edged sword in that whilst supply of repossessed homes onto the market will be less, at the same time the mortgage banks are being forced to carry loss making loans that prove costly to administer and without bringing in much needed revenue i.e. tieing up resources that could have gone to more profitable mortgage customers.

The Governments initiatives to reduce repossessions will have no discernable impact on the housing market price trends either positive or negative due to the points about tieing up capital in loss making costly to administer loan accounts. The number of homes expected to be repossessed during 2008 is now revised lower to 55,000 with the expectations of 65,000 homes for 2009 in advance of further government interventions in the housing market to prevent repossessions on an larger scale.

The government is engaged on a programme of forcing down mortgage interest rates by a series of deep unprecedented cuts in UK interest rates towards the target of 1% , and possibly even lower to make up the shortfall in the lack of responsiveness by mortgage lenders in cutting their rates, who at the same time have tightened lending criteria due to the increased risk of defaults.

The mortgage interest rates have fallen significantly from the credit crisis extremes and are heading to below 4% which implies a strong pointer for support for house prices as the cost of servicing mortgages falls and therefore ‘should’ support a recovery in housing prices. However the housing market has always been that of being driven by sentiment, in that it is the trend in house prices that is most significant and NOT the cost of servicing the mortgages, it is this which pushed house prices to above X7 earnings, where people were prepared to take on large mortgages at high interest rates for the prime reason that house price gains in the order of 15% per annum or more were far above that of the mortgage interest payments of typically 6%.

However now that the housing bubble has burst has resulted in the trend and sentiment reversing as house prices have already fallen by nearly 20%, which equates to a loss of £40,000 on an average £200,000 house that is now worth £160,000, which averages to a fall in value of £2500 per month. Against which a typical mortgage of say £160k on a £200k property at 6% would result in monthly interest charge of £800 per month. Now with mortgage rates having typically fallen to 4% which is resulting in an reduced interest payment of £533 per month or a significant fall of £277 per month that many commentators are taking as a cue for imminent price stability. Unfortunately the £277 saving is just above 10% of the amount that home owners are typically losing in value per month! Therefore the interest rate cuts are having little if no effect on the housing market, I first warned of this likely outcome back in February 2008 that interest rate cuts will not stop house prices from falling.

This therefore implies that low interest rates are not an important factor at this point in determining house price trend during 2009, as housing market sentiment is decidedly bearish and will take time to first stabilise and then start to recover.

UK Economic Recession – Unemployment

UK unemployment has probably already risen above 2 million by the time Decembers data is released in March, with the original UK unemployment forecast for a rise to 2.6 million by April 2010 now destined to be breached as the UK economy targets a severe recession on par with that of the early 1980’s rather than the more milder one of the 1990’s. Increasing expectations are that the UK economy will contract by 3% GDP during 2009 which implies that the UK is heading for an unemployment rate that could pass above 3,000,000 by early 2010.

Therefore this confirms that the UK housing market is at least 15 months away from a period of stabilising in nominal terms i.e. where house prices stop falling. The actual trigger for a resumption of the housing bull market would be a sustained period of falling unemployment with the trigger level of 2,000,000 expected to act as a strong marker for year on year housing market recovery as occurred following the last housing bear market. This suggests that the housing market may not embark on an sustainable up trend for as longs as another 4 years and thus points to a period of house price stagnation that will following the current crash in UK house prices.


Credit Crunch

a credit crunch is a period in the economy, distinct from a recession or depression, but potentially heralding one or the other.

Credit crunch including mortgage loans, personal loans, car finance, credit cards and other type o f lending become much harder to obtain in a credit crunch.

Credit crunch has completely changed the face of the global economy with hundreds of business. From banks and capital markets at given interest rates. The reduced availability of credit can result from many factors, including an increased perception of risk on the part of lenders, ann imposition of credit controls, or a sharp restriction of the money supply.


A sudden reduction in the availability of loans and other types of credit

Eg: Lehman brothers.

Supply Factor Affecting House Price

Immigration – There had been a large influx of over 800,000 migrants from the Accession states who contributed towards the buy to let market bubble

Strong UK Economy – The UK economy at the centre of the worlds credit bubble continued to outperform mainland Europe, which looked on with envy from the less flexible and more regulated European countries of France and Germany, though as we find out during 2009, not participating in the credit boom did not help them as many of the European banks become belatedly suckered into buying U.S. subprime mortgage backed toxic securitized debt as one the last to fling themselves onto the debt derivatives pyramid.


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