The importance of the housing industry
The property market in the UK is extremely important for various reasons.
Housing commonly represents a family’s main acquisition, and a house corresponds to the biggest single belongings of a family’s wealth.Shifts in household prices have sizeable impacts on the overall economy. A shift in household prices affects the worth of a household.Corrections in rates of interest commonly have a major impact on individual spending in the UK. This is because of the relatively sizable portion of home ownership.The long-lasting pattern for UK property costs is upwards trajectory, but changes in prices are incredibly cyclical.
Property is either Freehold or Leasehold. Freehold property means that the land is owned by the owner and can be used for any purpose, and Leasehold means the land isn’t owned, and the proprietor buys the right to use it for a period of time. Every year that goes by, the contract gets shorter until the land returns to the landlord.
Brand new properties and existing property
95% of transactions involve the purchase of either ‘old’ property or ‘modern’ property (post 1945). The relative scarcity of modern property is one of the key aspects steering the upward trend of UK property prices over time.
Real estate prices, loans and equity.
Whilst the debt on homes slips over time, real estate prices usually tend to ascend. This suggests that a proprietor’s equity in their property increases. Equity is defined as the difference between the market value of real estate and the debt incurred.
Ascending equity produces a positive impact, which may result in property equity withdrawal.
A damaging wealth effect happens if house prices drop creating a decline in equity. Prices may also drop to a degree that creates adverse equity, as in previous housing market crashes. Negative equity occurs when the amount of debt on a property is more than the value.
House costs and borrowing rates
A slight fall in borrowing rates can cause a big boost in the demand for property. Lower interest rates lead to:
Lower property loan rates, and stimulates new Buyers as well as people looking to buy second homes as an investment tool.
With a reasonable borrowing rate, customers with excess funds will get a better yield by investing in real estate as opposed to other traditional investments. This additional demand drives up residential property prices.
Independently rented residential or commercial property
With private rented real estate, the proprietor rents via a short tenancy contract, usually 6 months, though this may possibly be extended. Tenants generally pay a monthly rental payment.
The majority of property is acquired with the help of a long-term loan (mortgage) these can be for any period of time, but 25 years is the most popular.
Modern methods of securitisation of mortgages have meant that mortgage debt has been repackaged to offer a flow of earnings to third parties. This approach has been heavily linked to the most recent global economic crisis.
Borrowing rates began to fall substantially in late 2008, to drop to their all-time low. Since then, Bank of England base rate has continued to be at around 0.5%. Nevertheless, mortgage rates did not fall so drastically, as lenders looked to maintain their liquidity and boost their profits.
Supply of credit
The accessibility of credit is also vital in the demand for real estate. During the recent banking and economic turmoil the supply of loans tumbled which in turn reduced the demand for property and triggered a fall in property market value.
The rise in the availability and popularity of buy-to-let home loans in modern times have generated a new market for property as an investment and endorsed a resilient industry.
Other factors affecting property supply and demand:
Overall demand for real estate is affected by changes in the structure of the inhabitants triggered by migration and shifts in the birth and death rates. An ageing population will escalate the overall interest for house.
- Social patterns
Lifestyle trends may change the pattern of demand for homes. The preference for later marriages has resulted in an increase in the number of people living alone and to an increase in the demand for apartments.
Having property has become progressively stylish in the UK in recent times. One explanation is the number of TV shows spotlighting property acquisitions and make overs, which have boosted attraction in the property industry.
When it comes to new-builds, developing costs are crucial. A shortage of labour could increase building costs.
Subsidies provided to house builders are to encourage quantity, like the subsidies offered to redevelopers of ‘ inexpensive’ houses for key workforces.
- Government red tape
The requirement for planning permits for new property may well prevent house contractors from building. Relaxation of guidelines is probably to encourage property building. Governments can also tighten up or relax restrictions on developing in rural areas, such as green belt land
Balanced house prices
Demand for housing in the UK has risen consistently over the years while the supply has remained fairly steady. Building in recent years has been one of the lowest levels in Europe, and this, as well as other factors, has resulted in the increase in house values.