Housing Market In The Uk Essay

3222 words - 13 pages

I Housing market in the UKIntroduction:The housing market in the UK is under a lot of pressure because of the fact that the UK economy is under inflation and constantly increasing interest rates on the mortgage. The major factors influencing are inflation, interest rates and the income of the people. Though there are other factors that affect the housing market in the UK they are not as effective as the inflation and the interest rates. The interest rate has gone up in the last few years. According to the bank of England's data an average homeowner is paying £135 extra towards their mortgage payment compared to last few years which is about 20% higher than two years ago. The increasing interest rates have caused a major crash in the UK's present economy. As per the present situation a middle class family would not be able to afford a mortgage payment if this continues. As a result of this many people might have to lose their homes. This following essay will try to explain the major factors that determine the housing market in the UK and illustrate the facts and figures of the recent housing market in the UK. (Financial Times)The factors that are closely related to the crash of housing market in the UK are as follows:Inflation:Inflation is defined as a rise in the prices of goods and services, as happens when spending increases relative to the supply of goods on the market. For example, the 2.2% inflation in the UK in Jan, 2008 means that the prices on an average are 2.2 % higher than Jan, 2007. The present inflation in the UK economy is shown below. The consumer prices index inflation in January 2008 is 2.2% has gone up by 0.1% compared to December 2007 which was 2.1%. However retail prices index inflation is 4.1% in January 2008 compared to 4.0% in December 2007. (www.statistics.gov.uk)
Annual inflation rates - 12 month % change

Source: National statisticsDue to high inflation in the economy, interest rates went up on the mortgage which in turn created bourdon for the people in terms of paying the monthly payments towards their mortgages. Due to the increase in the interest rate most of the new home buyers who wish to buy houses in turn stated waiting until the interest rates came down, because of which the demand for the houses decreased day by day. On the other hand most of the home owners wanted to sell their houses at a higher price in order to get more equity on there house so that they can manage to payoff the mortgage. However this situation worsens the housing market by creating surplus houses in the market. The reason for surplus was that the new buyers did not want to buy the houses because of the fact that the interest rates where high and also the prices were coated high. This situation is plotted on graph below for better understanding.Source: www.calculatedrisk.blogspot.comLooking at a Supply and Demand diagram, the interest rate shock temporarily shifted demand from D0 to D1. This moved the quantity demanded from Q0 to Q1,...

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