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UK Housing Market

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Introduction

The UK Housing Market Saidul Amin 12LT To what extent do factors related to the housing market actually affect supply and demand of houses, and in turn, house prices? The housing market is a very large market in the U.K. It is also a very important market, as it can change the lives of many people living in the U.K and possibly even other countries. If house prices were to suddenly fluctuate, this could mean profit for some, however this could mean a total disaster for others, especially those who may be looking to get onto the "property ladder" and buy their first home/flat. There are many factors which influence the housing market in the UK. These can be split up into two main categories; demand and supply of houses. The term demand means "the want or desire to possess a good or service with the necessary goods, services, or financial instruments necessary to make a legal transaction for those goods or services." Demand can increase if there is an increase in real income, as people would have more money to spend as they are earning more, therefore more people could afford houses. However if inflation was to increase then people would not necessarily be any better off to buy more houses or bigger houses, as house prices would also increase. If interest rates were to decrease then this would increase demand as this would reduce the cost of having a mortgage. ...read more.

Middle

Opportunity costs for builders will have an affect on supply in the housing market, as a decision will need to be made to see if the builders can be used in a more profitable way for the money, therefore this can contribute to a lack of houses being supplied as there are more important jobs to be done, e.g. better investments, and making better use of the land. The most important factor in the UK housing market could be said to be the ability to be able to buy a house. This can be reflected in a person's mortgage. A mortgage is a "loan to finance the purchase of real estate, usually with specified payment periods and interest rates." It is quite rare to see people buy houses fully from their initial savings. In this case a loan needs to be taken out from a bank or building society. Before the 1980's these were only available in building societies however you can now take mortgages from your bank. Below is a chart showing the amount of loans taken out for house purchases. It shows a general increase in the amount of loans taken out to secure a house, however there is a drop in 1992 where it seems to reach it trough. This could be due to high interest rates which would have put people off from buying a house, or due to the removal of a policy called MIRAS which I will discuss later. ...read more.

Conclusion

The Abbey National recently said it would lend 5 times a borrowers salary. Banks are also considering mortgages over a longer period. This increased generosity in lending has helped to keep the market buoyant without addressing the underlying problem of overvalued house prices. And the arguments for the rise in house prices are: Rising Price of Renting. With the price of renting rising as well, it still makes sense for people to borrow as much as they can to get on the housing market. More Flexible Mortgage Lending New longer more flexible mortgages means people can still afford the mortgage interest payment. In conclusion it can be said that many factors cause a increase in demand in the Housing Market in the UK, however there is just simply not enough supply for this demand to be met due to such a high increase in each of the above factors stated, e.g. divorce rates. I do not think that equilibrium will be reached with demand and supply of housing in the UK, and therefore the prices of houses will alter and overall, increase in the short- term e.g. next five years, however beyond then, it will take a steep fall as there may be more alternatives or even cheaper alternatives to buying, and also more opportunities may come up, e.g. universities accepting students for more than one year at campus. This change will be similar to the incident in Japan in 1991 where house prices were very high and since have been falling consistently. Reference to further sites * http://www.lendingpartners.com * http://economics.about.com * http://www.uk-houseprices.co.uk * http://www.mortgageguideuk.co.uk/housing/house-price-fall.html ...read more.

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