UK HOUSING MARKET

UK Housing Market: Demand and Supply

UK Housing Market

It is now recognized that the increases in housing wealth which took place in the 1980s contributed significantly to the consumer boom of the 1980s. Many factors conspired to produce the house price boom of the late 1980s. Initial debt levels were low as were real house prices, giving possibility for rises in both. Income growth after the early 1980s recession was strong, as were income growth expectations and these became more important as a result of financial liberalization, though partly offset by bigger real interest rate effects. Wealth to income ratios grew and the spend ability of assets was enhanced by financial liberalization. This paper discusses UK Housing Market with a Comparison of South & North of London.

House Prices

UK property prices are way above the national average with the average house price in the capital touching £302,000, down 12.5% on June 2008. This was because financial liberalization also allowed higher gearing levels. Graphic trends were favourable with stronger population growth in the key house buying age group(Schiller 2007 pp.56-59). New research from Halifax estimates that the value of the UK's private housing stock rose by 9% (nearly £320bn) in 2007 to a record £4.0 trillion (£4,000 billion). The value of the housing stock has more than tripled over the past decade, rising by 208% from £1.3 trillion in 1997.

By comparison, the headline retail price index (RPI) has risen by 31% over the past ten years. The value of the private housing stock (£4.0 trillion) was 3.4 times the value of outstanding mortgage debt of £1.2 trillion at the end of 2007. Ten years ago, private sector housing assets were 3.0 times higher than mortgage debt.  In 2007 the value of housing assets in the South* was £2.2 trillion compared with £1.8 trillion of housing assets in the North**. The South's share of the UK housing assets held steady at 55% in 2007, while the share of the North was 45%. However, the North - South housing wealth gap has narrowed over the past five years. The South accounted for 61% in 2002 and the North for 39%. 

Offreing vs. Asking price in the central London (South)

Factors causing the demand and/or supply curves to shift

Graph shows volatility of UK House prices

House prices are affected by a combination of supply and demand factors.

Demand Side Factors

Economic Growth / Real income

Rising incomes enable people to spend more on buying a house. Traditionally, there was a mortgage ratio of 3 times your salary. Basically if you earnt £20,000 the building society would lead £60,000. Therefore rising incomes enable house prices to rise(www.statistics.gov.uk). However, the ratio of house prices to income can vary considerably. For example, between 2007 and 2009, the ratio of house prices to incomes have increased significantly. see: House Price to Incomes ratios If the economy goes into a recession and unemployment rises, the demand for buying houses would fall significantly.

Interest rates

Interest rates affect the cost of paying for a mortgage. Interest rates are very important as mortgage repayments are usually the biggest part of a homeowner's monthly ...