Impact of Financial Crisis on UK Housing Market

This article discusses the impact of the financial crisis on the housing market in the UK, including the recession, reduced employment, and government interventions. It also explores the recovery efforts and the role of government policies in supporting the housing market.

Contemporary
Business Environment
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TABLE OF CONTENT
INTRODUCTION...........................................................................................................................3
1 Change in average house price in UK over period of 2009-2019............................................3
2 Economic Determinate of Changes in housing market in UK.................................................4
3 Impact of Financial Crisis on UK Housing Market..................................................................7
4 Impact of Coronavirus (COVID-19) on UK Housing Markets................................................8
CONCLUSION................................................................................................................................9
REFERENCE................................................................................................................................10
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INTRODUCTION
Contemporary business environment refers to such environment that keep on changing thus
enterprise that are working in such industry need to know about various changes and
development in external environment in order to sustain and grow within particular industry. UK
housing market has rapidly changed during previous 10 years so various enterprise needs to
evaluate such external changes for effective growth and expansion of business in the industry.
The report has discussed about average house price in UK changed over period of 2009-2019
and various economic determinants of change made. It also analysis impact of government action
and COVID-19 on UK housing market sector so that various strategise can be formulated by
companies to gain competitive advantages.
1 Change in average house price in UK over period of 2009-2019
It can be stated that there had been constantly increase in average house price in UK as per
data of 2019. It have been analysed that prices of house have been raised from 1.3% in October
to 22% in November 2019. West midland and North West are major areas of England that where
sufficient increase in prices of house have been noticed (Dorling, 2019). Therefore it can be
stated that average price of house in Wales is £173,000 that means 7.8% increment in prices of
house in 2019. On the other hand £251,000 in England and £140,000 in Northern Ireland thus
such rapid changes in price of house has provide opportunities to enterprise to start business of
house to earn maximum profit. It have been noticed that over many years before 2019 there was
slowdown in growth of house pricing, especially in east and south of England. In November
2019 east of England have lowest annual growth rate that is approximately 0.7% (UK House
Price Index: November, 2019). Therefore it can be illustrated that housing price in UK have been
decreasing since 2016 but suddenly it had increased in 2019 due to various reason. Average
house price in UK has increased from £230,000 in November 2018 to £235,000 November 2019
thus on non seasonal period price of house have been increased to 0.4% whereas in it is 0.6%
between October and November in 2019. Thus, price of house have been increased since 2019
with large volume of transaction and higher month growth. Residential property has showed
lowest annual increase in price of house in 2012 that can be estimated as 157.2 thousand British
pounds, whereas as per 2013 average house price have been increased on quarterly basis. There
are various changes in price of house since 2009-2019 so thus it has adversely impacted on
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growth and expansion of business. It can be stated that highest change in prices of house is
between 2013 and 2014 which has been estimated around 9%. On the other hand as per February
2020 230.3 thousand British pound is market value of house. The trend of rise in prices of house
was not only in UK but also in various European countries such as Denmark, Germany and
Netherlands. Therefore it can be illustrated that since 2013 house have become more expensive
and situation of inflation started within UK country leading to less opportunities for employment
and disposable income of people. It is forecasted that price of Residential house will grow further
due to numerous reason such as more attention of government in solving issue of Brexit. As per
rough estimation in second half quarter of 2019 estimated value from house is around 216
thousand British pound. Therefore there are various annual changes of house prices in United
Kingdom between 2007- 2019 such as in initial stages price of house are low whereas in 2019
price of house tend to increases because of various factors and it is estimated that it will further
increase in future. High annual growth rate in price of house was mainly in West Midlands that is
4% as per November 2019 and London has second lowest annual growth rate in annual price of
house. It can be stated that all such are various increment and decrement in price of house in UK
which impact on operation and performance of business in the industry.
2 Economic Determinate of Changes in housing market in UK
Various economic determinate that has adversely impact on housing market of UK are
economic growth, unemployment rates, demand and supply of house, interest rate and
availability of mortgage and customer confidence. Therefore various economic determinates are
as follows:
Economic growth: UK is one of the best locations to live human life so, citizens of the country
also making their life standards high by earning more and spending more in the market. Growing
of the income level between the people of the UK leads hike in price of the houses over the
period. Prices of houses are according to the income level prevailing in the market. People with
higher level of income in the country affects the price as it’s easy to buy the house or land in the
market. Income of the people plays a vital role in the economic growth of the houses (Barrell,
Karim and Ventouri, 2017). Since 2012 economic of UK is facing situation of recession, high
unemployment rate thus it lead to inflation and credit crunches decrease in demand of prices and
house. High rate unemployment, and decreased in disposable income has reduce affordability of
people to by house thus prices of products. Therefore it can be stated that economic growth and
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recession impact on pricing of housing in UK.
Consumer confidence: It is another factor that impact on price of house that is knows as
consumer confidence. Consumer confidence explains time period at which people of the country
are willing to take the risk in the market to invest their money to buy house. People are ready to
develop their house to have a good life survival. Mortgages and interest are quite common to
purchase a house in the market (Agnihotri and Bhattacharya, 2017). Consumer confidence is a
period where people are ready to take out risky mortgages which are needed to buy a house in
UK. In this period people are more attracts towards the housing market which leads to mortgages
with higher debt according to the income ratio. Economic boom in the UK gave confidence to
the citizen to take the loan with high interest rate in the market to build the house property
(Mussa, Nwaogu and Pozo, 2017). Policies of loans were made easier to make investment in the
house sector to generate the living standards of the people in UK. Growth in the economy of the
country results in low unemployment in the market. This gives a confidence in the people about
their earnings as low unemployment will generate safe and secure earning over the period.
Confidence level between the people can be showed by the increase in the real estate business of
the market. Therefore confidence levels of consumers have lead to increases or decrease in prices
of house in UK market.
Interest rates: It is the amount charged on the principal value by various financial institutions
or banks against some security. UK banks provided debt to the people against the security taken
as house in the market. People easily get debts on the basis of pay slips and house paper as
security prevailing in the market. It’s easy for people to pay debt when charged lower interest by
the institution in the market therefore demand of house increases. During the period of recession
people were unable to pay the debts and high interest rate as unemployment hiked in the market
thus lead to decreases in prices of house. People left with no income in the period. Interest rates
are very important to payback the amount in the market (Shen and Karimi, 2017). If instalments
are not able to be repayable by the people then institution left with no option and have to make
sell out the house in the market to generate the return over the bad debt. In UK, majority
homeowner have variable mortgage which will affect surely the repayments amount to the
institution. Rise in interest rates in 2012 leads to drop in demands of the house in the market.
Lack of demand and excessive supply of the houses have resulted in worst affect over the real
estate business. As banks needs timely repayments and if anyone unable to repay the debts then
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auction of the house is the last option with the institution. Therefore it can be stated that high or
low interest rates charged by banks have affect on housing market of UK.
Availability of mortgage: it is one of the factors that impact upon prices of housing such as if
mortgages are available at reasonable rates thus demand and prices of house increases. Due to
credit crunches and shortage of finance in 2008 mortgage products have fall down thus price of
house increased will lead to decrease in demand of house in UK (Walker, 2016). As loans are
available at higher rates and people does not have much income to afford house so it has affected
on price of housing in UK market. Thus, unemployment, situation of recession are some of the
factors that
Demographical factors: It can be stated that there in continuous growth in population and
segregation of family in UK has resulted in demand of household and increase in prices of
housing. People between age 16-17 in UK become independent thus it has lead to large number
of house buyers ultimately increase in price and demand of house. UK also have high number of
younger generation that wants to live alone with their separate house thereby it lead to increase
in demand of housing abut supply was less (Claessens, 2017). Therefore it can be stated that
demographical is other factors that impact on overall housing market of UK.
Supply: Decrease in supply of house lead to increase in price of house so it can be explained
that both have opposite relation. Supply of house depends upon two factors new house builds and
existing stock of house in particular market. Due to less availability of land such as in UK supply
of house cannot increase due to increase in prices of house. Thus, supply of house in economic
has impacted on overall prices of house in UK market (Auzeby and et.al., 2017). Rise in price of
house in 2012 has mainly due to increasing population and shortage of supply in housing. Prices
of house were overvalued due to boom years so it had resulted in decrease in demand of houses.
Therefore it can be stated that shortage of supply of house, credit crunches, inflation and
high rates of interest has lead to increase in prices of house and affected on overall demand of
house in UK market. In period of 1998 to 2005 house prices are doubled in UK and during such
years there was limited increase in supply of house (Benetton, 2018). It can also be illustrated
that low interest rates, availability of mortgage, rising population and confidence of consumer
have lead to rise in demand of housing in UK.
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3 Impact of Financial Crisis on UK Housing Market
UK faced many ups and downs in their economy which has also impacted the growth of
housing market in the country. Due to impact of 2008 recession UK housing market dipped
drastically which also reduced the economy of UK and also impacted the development of
country at the time. Financial crisis has reduced the employment in the country which reduced
the per capita income of population as a result investment in housing market was reduced and the
overall demand in the market declined in the year 2009 severely. Stock market has also reduced
the earning opportunity for the people as all the multinational companies in the countries were in
huge loss which also crashed stock market of UK (Cook and Watson, 2016). Housing market
also reduced its market rates of property which also impacted severely on UK wealth
accumulation to recover from the recession. As the Housing market was already in recession
since 2006 due to over pricing which created recession in the market and reduced the sales of
properties. Soon government of UK intervened in the operation of banks and provided many
unsecured loans in the housing and other business sectors to revise the economic growth and
recover from the financial depression. Government also rescued major banks which can support
the economic growth and introduced low interest rate loans to small and micro scale businesses
to increase the productivity of the country. This gradually increased the employment opportunity
in the country and improving the income level of citizens. However, government has promoted
more production in the country and also decreased the interest rates which increased the cash
flow in the market to support the recovery from recession. However, this also reduced the gold
treasures and revenues of government to invest in the future development of the country.
Government also practices many monetary policies to support to economic growth however there
was huge imbalance of cruising in whole Europe which also led to decrease the productivity of
the country. Gradually with the efforts of Government policies and with the help of bank housing
market of UK started to grow and increased the economy of the country as well. This also helps
the increase the efficiency of the country to develop strong fiscal policies which helped many
housing business to rise. In 2012, government initiated with help to buy schemes for citizens by
providing loans and mortgages on property which helped to increase the housing business
eventually. Home loans, zero rate mortgages also influenced many buyers to but properties in
UK and especially in London to increase the growth of market effectively (Clair and et.al.,
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2016). It is very essential for housing business to understand all the market factors which had
impacted the demand of customers in the country and it was very important for government of
UK to support all the businesses in the country and provide security to increase their productivity
and reduce the risk of recession again. However, UK is again facing issues like recession due to
major lockdowns in the country due to Covid19.
4 Impact of Coronavirus (COVID-19) on UK Housing Markets
After the closure of housing market in UK since mid-March, 2020, no UK citizen could
move houses or rent another property, which stalled an estimate of about 450,000 property
transactions in the housing markets of UK. Now that the UK government has announced housing
markets to reopen from mid-May, there are several requirements that purchasers, realtors,
builders and estate agencies must follow due to the outbreak of Coronavirus (COVID-19) in UK.
These impact of the Coronavirus (COVID-19) on housing markets of UK is as follows:
Government Guidelines: The UK government has declared detailed mandatory guidelines for
all parties concerned that are involved in UK housing market’s transactions which effectively
include surveyors, buyers, estate agents, sellers, traders etc. The government has also detailed
guidelines to tenants, landlords. These guidelines mandate all parties concerned to maintain
sufficient social distancing between each other and to be immensely careful and cautious of their
actions. The guidelines also mandate that no open house viewings should take place in UK, as
these tend to attract large groups of people which is disastrous in current times due to
Coronavirus (COVID-19). Real estate agents are also mandated to not conduct or engage with
any potential client that has or is exhibiting the symptoms of Coronavirus (COVID-19).
Individuals who have been asked to self-isolate and quarantine themselves are also advised not
move homes during this period (Nicola and et.al., 2020). Further the guidelines include that all
initial viewings of the new house should be done virtually wherever possible and that physical
viewings of the new property must be limited to certain members of a household and not the
entire family. All these guidelines are placed to stop the spread of Coronavirus (COVID-19)
through operations of the housing markets of UK.
Delivery of Stalled Demand: Prior to UK’s lockdown, due to Coronavirus (COVID-19), the
housing markets of UK experienced a demand decline of around 38% of its transaction levels,
which has resulted in problems for the UK economy. This has resulted in an approximate loss of
up to 5.9 £ billion Euros in total accounting for diverse operations of housing markets of UK
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(Lea, 2020). Now that finally the housing markets are reopened for the public, it can expect an
effective increase in demand for the various operations of housing markets of UK, as these
customer’s demands were stalled due to the lockdown because of Coronavirus (COVID-19).
Changing Trends: As the current times have been economically hard for the UK population
owing to the Coronavirus (COVID-19), the housing markets of UK are expected to see changing
consumer trends. While young working population of UK still need houses and properties for
their requirements, the older aged populations of UK are expected to downsize their current
houses and properties in an effort to provide financial support to their families in such troubling
times. If this trend does become popular amongst the older generation of UK population, it could
destabilise the pricing strategies of sellers within the housing markets of UK.
CONCLUSION
It can be concluded from report that there are various changes in environment that need
to be identify by business in order to grow and develop its operation and gain competitive
advantages. It can also be illustrated from above analysis that prices of housing have increased in
UK since 2019. There are various economic determinate that affect prices of housing in UK such
as economic condition, supply and demand of house, mortgage rate and demographical factor or
situation of inflation. Different policies and action of government has impacted on overall house
price in UK between 2009-2019. It can be stated that COVID -19 has adversely impacted on
housing market of UK as demand of house have been decreased and overall industry has bear
huge losses. Therefore appropriate strategies need to be formulated to protect business from
uncertain changes that occur in environment for effective operation.
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REFERENCE
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Online
UK House Price Index: November, 2019, [Online]. Available Through:<
https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/
november2019>.
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