Guide to Housing Market

  • Affordability. The ratio of house prices to disposable incomes. Also can be measured by measuring ratio of incomes to average mortgage interest payments.
  • Affordable Housing. – Housing that is within the budget of key public sector workers and first time buyers. Generally, there is a shortage of affordable housing in the UK – affordable housing.
  • Base Rates. This is the base interest rate set by the Monetary Policy Committee MPC. This rate will determine all the different interest rates in the economy. If the MPC increase base rates, mortgage lenders usually (though not always) will increase their lending rates by a similar amount.
  • Boom and Bust This involves rapid changes in the economy, during a boom period house prices rise rapidly helping the economy to grow fast. However this causes inflation. If interest rates then rise then the economy will slow down causing a fall in house prices.
  • Capital gains This occurs when people have an increase in the value of their assets such as your house. This leads to the “wealth effect”
  • Conveyancing – This is the work that is done to enable the legal transfer of property. The process includes drawing up contracts, understanding and carrying out searches, and looking after all post-completion paperwork.
  • Credit Crunch. – The experience of banks not being able to raise funds for mortgage lending. This stemmed from the sub prime crisis in America and means that many commercial banks have had to withdraw mortgage products. See: credit crunch explained
  • Equity Withdrawal If house prices increase, owners can take advantage of this by re-mortgaging their house giving people extra disposable income. For example if you bought a house for £100,000 you would have a mortgage for that amount. If the value of the house increased to £130,000 the bank will be willing to lend you an extra £30,000
  • First Time Buyers. People who are looking to buy their first house. In recent years, it has become more difficult for first time buyers to get on the property ladder. House Price Income ratios for first time buyers
  • Fixed Rate Mortgage. A mortgage where interest payments are fixed for a certain time period, e.g. 2, 5 years.
  • Gazumping – When the seller of a house accepts a higher offer, after agreeing in principle to a lower offer. Gazumping can occur in the long period before house contracts are exchanged. More on Gazumping
  • Gazundering. This is when the buyer waits until just before completion and then lowers his offer. If the seller doesn’t accept, the whole chain can collapse.
  • Home Information Packs HIPs. These are packs that include information about a house price sale. It involves an energy performance certificate, property searches and evidence of title. These are usually put together by a buyer’s conveyancer or solicitor.
  • Housing Crash. Housing Crashes can Occur.
  • House Price Inflation – The annual increase in house prices in the past 12 months. Note, house prices can fall in a particular month, but still leave a positive annual house price inflation
  • House Price to Income Ratios. The ratio of house prices to average incomes. In the UK, they have been increasing in recent years.
  • Income Multiples – Income multiples are used for determining how much a potential buyer can take out. The traditional income multiple used to be 3 times income, but that is often exceeded now.
  • Interest Only Mortgages A mortgage with only interest payments required, and no capital repayments. Usually requires an alternative repayment plan. Interest Only Mortgages
  • Interest Rate Cycle. The idea that interest rates tend to move in cycles closely related to the business cycle. In recession, interest rates fall to boost spending. In a boom interest rates rise to reduce inflation.
  • Joint Mortgages. Joint or shared mortgages when 2 or more people join together to get a property. Joint Mortgages
  • Nominal House Prices – This is the actual monetary value of the house
  • Real House Price: This is the monetary value minus inflation. E.g. house prices have increased 150% in the past 7 years. In real terms this is an increase of 120%
  • Mortgage repayments: To buy a house people have to borrow money. Therefore they take out a mortgage, this loan is then paid back in monthly mortgage repayments
  • Negative Equity. This occurs when there is a fall in the real value of the house. It means that if somebody wanted to sell their house they would get less for it in real terms than the original buying price.
  • Recession  This occurs when there is a fall in economic growth for 2 consecutive quarters. (This occurred in the late 1980s and early 1990s)
  • Self Certification Mortgages. Mortgages where people don’t have to prove their income. Often used by the self employed. Self Certification
  • Stamp duty This is a tax that is paid on buying a new house. The more expensive it is the more tax that is paid . Rates of Stamp Duty Land Tax
    • up to £125,000 0%
    • £125,001 – £250,000 1%
    • £250,001 – £500,000 3%
    • £500,001 or more 4%
  • Sub Prime Crisis – What is subprime and what was the subprime crisis?
  • Wealth Effect The most common form of peoples wealth is their house. Therefore if house prices increase people feel wealthier and therefore spend more causing an increase Aggregate Demand.

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