The UK Housing Market

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The UK Housing Market

The UK housing market has always been a good investment. Over much of the last forty years investing in housing usually using a mortgage have given better returns, sometimes much better than leaving your money in a bank account gathering interest. The market does seem to be a bit more volatile than leaving your money in a bank account though. During the last Boom and bust that the housing market experienced, over half a million homes were repossessed, thousands of jobs were lost and a few million home owners were left with a mortgage worth more than the value of their property. The was during the 1980’s and early 1990’s when the previous house price boom came to an abrupt end.

The performance of the UK housing market since the awful terrorist attacks on 11th September has been remarkable. Despite many predictions of a slowdown at that time, the low interest rate policy of the Bank of England, led by Sir Edward George, has kept housing demand buoyant. As stated by the Bank of England and many others, the current rate of growth of house prices is definitely unsustainable.

However, with weak economic activity and financial markets, it is unlikely that interest rates will move significantly upwards from their twenty-five year lows in the near future. Consequently, it remains to be seen what might trigger a slowdown or fall in house prices. Nonetheless, the housing market is probably riskier than at any time since the early 1990’s. We can see from the graph that one reason why people were attracted to buying a house at the moment is because of the favourable interest base rate.

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More recently we have seen renewed interest in the strength of the UK housing market. In 1999 and 2000 there was a clear acceleration in house prices in many (but not all) regions of the country. House price inflation rocketed to over 15% by the early summer of 2000 before beginning to soften as higher interest rates and increased taxes on house purchase started to have their effect.

House price inflation continued to go downwards in the spring of 2001 before the market showed renewed strength in the summer of 2001. This is a clear trend. This is because ...

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