Interest Rates and Availability of Credit
Most houses are not purchased with cash. This is because they are too expensive for most people to afford. Therefore the majority of potential homeowners have to take out a loan in order to pay for it, these loans are called mortgages. A home buyer or builder can obtain a loan either to purchase or secure against the property from a financial institution, such as a , either directly or indirectly. Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably.
If interest rates are low then people are more inclined to take out loans, but at the moment interest rates are relatively high then people will be less willing to take out loans. This is because repayments on the loan will be high, and may in fact be too high for people to pay back especially people with low incomes. With a decrease in the number of homes purchased, it leads to a decline in the housing market.
Due to the current times, deposits to buy houses have increased. With higher interest rates it is taking people long to save for there deposit needed, this could both bring about positives and negative. A positive is that instead of people buying a house they may rent for the mean time while they are saving up on a deposit for a house, this would therefore increase Keith Ian’s rental sales. On the other hand, if people start to rent they may in fact decide that they never want to buy a house and carry on renting leading to Keith Ian’s sales of bought houses dramatically decreasing, this means that the profitability of Keith Ian will be decreased.
The housing market is a market where the availability of credit matters greatly. If the availability of credit is low, then less people will be able to take out loans. This will lead to a decline in the housing market, therefore affecting Keith Ian’s profitability; also decreasing the commission they make due to the amount of houses they are able to sell decreasing. If credit is made readily available this means that more people are able to take out loans therefore increasing activity in the housing market for Keith Ian. At this moment in time credit is relatively hard to get due to the high deposits people have to pay in order to get the mortgage, is means that less people are taking out mortgages resulting in a decrease in sales revenue. As I said above people therefore may be more inclined to rent accommodation.
Whether the Economy is Growing or Receding
The UK has been in recession since the second quarter of 2008, a recession is when the economy is in economic decline for 2 or more consecutive quarters. This could affect them both positively and negatively.
Consumers may have less disposable income; due to fears of unemployment and the threat of workers hours being cut back. If companies are not doing well then companies will not give their employees wage raises or bonuses. The recession creates uncertainty for consumers, as they are not sure whether the business they are working for will survive throughout the recession. In booms people generally take out loans due to credit being readily available therefore people decide that they need to pay them back when we hit recession; causing them to have less income. This is bad for Barbour as people will be less inclined to buy products from their stores as they are quite expensive causing sales revenue and profits to decrease. This therefore means that they’ll be unable to expand and may loose out on market share. Loosing out on market share may mean that they have to cut back on employees therefore increasing unemployment levels.
Keith Ian has surprisingly had a good recession this is due to it being a prestigious estate agency and the middle class not being effected as much as any other class. Middle class are the main buyers of houses in a town like Ware. Ware is also deemed as a very desirable place to live therefore people are still willing to buy house in the local area. Other businesses during the recession are unable to survive therefore having to close down; this is a great opportunity for Keith Ian as they may in fact receive the flow of customers that were one going to its competitors. The term savvy shopper is associated with people who are very careful with their money and what they spend it on. These labelled consumers are a highly influential in the sales revenue and profitability of Keith Ian. They may generally in these economic conditions looking to buy a new house, as they know they are going to live there for a long time. These types of shoppers will help to push up sales revenue therefore increasing there profitability.
Government Policies
The government have many different polices which could be put in place, there principal aim is to keep the four many factors under control. This includes;
- Rate of inflation
- Economic growth
- Levels of employment
- Keep balance of payments in equilibrium
Government policies can either be positive or negative for a business like Keith Ian. One of the recent policies the government has put in place is the reduction in spending; this can have an indirect effect to Keith Ian. In the spending cuts they’ve decreased the amount of spending on education. This therefore means that schools aren’t going to have high quality up to date facilities due to the fact that they aren’t receiving a big enough income to be able to afford it. This would make Ware a less desirable place to live, due to Ware having undermanaged schools. People may feel like they don’t want to move to the local area because the schools aren’t up to scratch and they want their children to have the best possible advantage of education. They have also cut spending on roads this will have a negative affect on Keith Ian. People won’t want to move to Ware and will decide to live elsewhere due to the fact that the roads won’t be maintained leaving horrible pot holes all over the roads. This could mean that people want to move out of Ware and relocate if they do so they may have to sell their house than less than they were originally planning to due to the fact the demand for houses in Ware will be decreased. This will mean that they’ll receive less revenue from it making the business less profitable.
If the government were to increase stamp duties, but this doesn’t have a big affect on starter homes due to the fact that they have scrapped stamp duty for first time buyers. This therefore will encourage first time buyers to enter the market, as it’ll be cheaper for them. This could be a good thing for Keith Ian due to the fact that first time buyer’s increases there demand for buying houses. This therefore increases there sales revenue, and Keith Ian’s profitability. But stamp duty isn’t a big amount of money so this may not make a lot of difference to the housing market.
Unemployment Levels
Unemployment at the moment is a major problem for the UK economy. Which can affect Keith Ian, both positive and negatively. Unemployment usually means that people will have less income coming in as they will solely live off benefits. This therefore means that people are going to be less inclined to want to spend there money. But if many jobs are lost people may be likely to not be able to afford to buy houses which are an expensive item which will last longer but may have to go for the cheaper options to save money to buy other necessities for example rental accommodation. This could in fact turn into a good thing for Keith Ian as it’ll increase their rental sales but selling houses gives them more revenue.
Some situations when unemployment gets so bad businesses in fact may not be able to sell enough houses to cover their costs of running the business, therefore causing them to have to shut down. This is a good thing for Keith Ian due to the fact that I stated above, Keith Ian may actually take in the market share in which was once owned by the businesses which have closed. This is because the amount of estate agencies in the area would have been restricted therefore leading to Keith Ian being one of the highest names in Ware town.
Having high unemployment creates uncertainty with workers; they are hesitant to spend money because it could be likely that they are in threat of loosing their job. They then decide that they don’t want to make large scale purchase which could then effect the level of income coming in even more as there mortgage may increase or they may be first time buyers and not want to get into large debt when unemployment is a risk. Therefore this has a hugely negative effect for Keith Ian because there sales will decrease massively due to the prospects of many job cuts especially in the public sector. Keith Ian may in fact have to go along with the job cuts and cut some of there workers, as I found out from a visit there they had to cut their cleaners as they just didn’t have the spare money to be able to fund them. This affects Barbour due to the fact that people aren’t buying the high priced goods in which they were when they didn’t have a risk of unemployment; they feel like they have to save money, because the day may come when suddenly they are made unemployed. On the other hand this may be a good thing as people decide that they want to buy expensive durable clothing that they know will last a long time and won’t have to keep replacing them.
Globalisation
Globalisation is a system of integration amongst the countries of the world, helping them to develop the global economy. Globalisation involves technological, economic, political and cultural exchanges made possible largely by advances in communication, transportation, and infrastructure. Globalisation could have positive or negative affects for a business like Keith Ian.
Improvements in international trade can come along due to globalisation this may be negative for a business like Keith Ian due to the fact that a company like Glaxo Smith Kline may in fact decide that they want to relocated there production to another country. This could be due to that fact that it is cheaper to produce the products that they produce here therefore meaning that there costs will be reduced. With these improvements in international trade they will be able to transport their products to England were they will distribute them for a relatively lower price than they were before. They will also be able to set their wages at a cheaper rate; this will therefore have a massive knock on effect for a business in the housing industry like Keith Ian. With the relocation of a business like Glaxo Smith Kline they may take some of their highly respected and hardworking employees with them. Most of the people working for Glaxo will live in Ware or nearby, they may have to sell there houses resulting in more houses for Keith Ian to be able to sell therefore it would be really good in the short term for this to happen. As there sales revenue will increase, due to there increase in sales of houses. On the other hand in the long run it will not affect Keith Ian in the same way that it does in the short run. Due to there being a major decrease of people coming in to the town of Ware because of Glaxo’s relocating with the increase in globalisation. Demand for housing in Ware and the local villages will decrease particularly the more expensive houses, due to Ware being an expensive place to live already it could mean that they loose out on masses of business. This will result in Keith Ian having houses left unsold. This will be bad for Keith Ian’s profitability as they won’t be able to make the money they were making with a big company like Glaxo in the town.
Having a company employing hundreds of workers like Glaxo does, to loose them would have a huge effect on a small town like Ware. Glaxo relocating to another country mean that Glaxo won’t be able to keep all their workers in which they were once employing; this could be a good or bad thing for a town like ware. With many people unemployed they could decide that they want to find other jobs in the town of Ware therefore helping to increase the productivity of the town. This could encourage more people to want to move into the town. Therefore more houses being bought, giving Keith Ian the push they need to become a successful business. Gaining them a high market share due to the fact that they are a prestigious estate agency so people are more likely to want to buy a property with them because they have high attention to detail with everything they do. For instance with my experience they take there shoes of when coming in to someone’s house, on the other hand other estate agencies would look over this point.
On the other hand having the relocation and the job losses could be really bad for Keith Ian, people may want to find a job as high up as they were before this could mean that they would have to relocate in order to do so. Therefore they have to move out leaving less demand for houses in Ware. This will consequently cause a decline in the housing market for properties in Ware, decreasing the sales revenue of Keith Ian. Making the business less profitable, and may not have the money to run anymore. On the other hand this could be a good thing for Keith Ian as other businesses could go bust due to the decrease in demand f or properties, as Keith Ian is a highly established business they may be able to last through this time and take all of the custom from the estate agencies in the local area who haven’t managed to survive through the relocating of Glaxo.
