Using Demand and Supply Analysis Identify Those Factors Which You Think Have Been Important in Affecting House Prices in the Uk over the Past Five Years or so.

Decent Essays
Over the past five years or so, house prices in the UK have been constantly changing. At times, house prices being on a rapid increase and at other times falling. This leads to a possibility of negative house equity. As per Sloman and Garratt: “negative house equity is whereby the outstanding value of a mortgage is greater than the value of property against which it is secured.” (Text Book) Supply and demand are the main determinants of house prices, as the equilibrium of house prices will fall if demand rises and supply falls. An important characteristic of UK house prices identified from the UK house price inflation chart is the tendency of prices to rise over the long term, more quickly than incomes and consumer prices.
…show more content…
Whereas, in 2008 to 2010 unemployment rates increased by around 3% in those three years (as shown in the UK unemployment rates graph) due to the recession. This meant that the demand for buying houses fell drastically and supply became elastic as people stopped buying as house prices became financially difficult to afford. This is because people’s incomes were falling or growing much slower giving them less confidence on whether they could afford such large mortgages. Statistics show that areas where unemployment is above the national average, incomes are more likely to be lower. This has a negative effect on consumers’ confidence to buy houses, implying an overall negative impact on house prices altogether.

Another demand factor affecting house prices is the cost and availability of mortgages. Interest rates affect homeowners’ ability to keep up with the mortgage repayments especially as the majority of the UK has variable mortgages. For this reason, from 2004 to 2008 when interest rates were rising, less people took out mortgages because for many, they were unaffordable and for others it was difficult to make repayments. Although, as per Sloman and Garratt, “when interest rates fall, the cost of servicing debts falls helping to fuel the demand for housing.” (Text Book) This supports the idea that when interest rates fall the demand for housing rises. As there are many different types of mortgages available (such as interest only and mortgages
Get Access