ISSUES FACING THE HOUSING INDUSTRY IN UK

Issues Facing the Housing Industry in UK At The Present Time



Issues Facing the Housing Industry In UK At The Present Time

Introduction

Housing markets are unlike most others because of the time lag between the expression of demand and the response of supply, and the complexity of the relationship between the two. This can be both a strength - as reactions to a downturn in demand can be slow - and a weakness - In that supply can lag behind growth in demand. It also means that housing markets do not tend to change dynamics overnight. (Lizieri, 2006 Pp. 43)

However, property prices are especially volatile in the UK when compared with other European countries because of the nature of mortgage lending. Two-thirds of mortgages are based on variable rates, which means that the housing market is especially vulnerable to interest rate changes such as those we have seen recently.

Background

The fragmentation of the UK housing market Markets are increasingly fragmented geographically. It's difficult to talk about the 'housing market' when there are such wide variations in sales rates and prices between north and south, between regions, sub-regions and more locally. The weaknesses of the housing market

The fear of a housing 'bubble'

The greatest fear is that homes are overvalued, and that prices have built up such a momentum that they constitute a 'bubble'. The key questions are whether prices are too high to be sustained by economic conditions and whether the bubble will burst to produce an adjustment in the relationship between prices and incomes.

Growing affordability problems

Affordability problems are acute and growing and their effect is double-edged as they can both dampen demand, potentially leading to falls in property prices, and store up demand until such time that homes become more affordable.

The 'dampening' impact of interest rate rises

In the context of slightly negative real earnings growth and increases in food prices, interest rate increases since summer 2006 have impacted on the income households have available for housing, on affordability and therefore on activity in the market. The potential impact of such rises can be seen in the consequences for homeowners who took out fixed rate deals two years ago, who are likely to face mortgage payment increases in the region of 10% or more when they re-mortgage. The Land Registry reported that monthly growth in property prices in England and Wales for transactions completed in August 2007 slowed down to 0.2%, the average property price was £182,914 and the annual change in house prices equivalent to 9.4%. The RICS reported similar price trends, but on the demand side new buyer enquiries declined at the fastest rate since March 2003, and Hometrack has identified that the average time taken to sell a property has increased from 5.8 weeks in May to 6.5 weeks in July, and asking prices have fallen from 95.7% May to 95.1% over the same period. The Council for Mortgage Lenders has identified that 14,000 homes were repossessed in the first six ...