Impact of Credit Crunch on UK Housing Market

A Study of THE IMPACT OF THE CREDIT CRUNCH ON UK HOUSING MARKET

Submitted to: University of Gloucestersire Gloucestersire

In partial fulfilment of Master of Business Administration (MBA) In Finance

October 2011

Submitted by !ino" Ku#$r Con%&$n%

Student I: B0!!"#$#$1110 %o& Student 'umber: s101!1 Sc*ool of Business and +a, (%o&)

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Ac'no(le"%e#ent

First of all- my immense .ratitude .oes to t*e %ni/ersity of &loucesters*ire pro/idin. me t*is opportunity to do researc* in t*is topic on be*alf of partial fulfilment of Master of Business Administration I ,ould lie to t*an my super/isor- rnest 3apaya for pro/idin. me suc* effecti/e .uidance bein. friendly and supporti/e all t*e time- ,it*out *is .uidelines .uidelines it ,ould not be possible to accomplis* t*is researc* alon. ,it* all my professors and lecturers I can4t stand bac ,it*out t*anin. to t*e 5ity Business library- +ondon +ondon and Britis* +ibrary staff for bein. *elpful durin. my researc* I am t*anful to my family for pro/idin. me support all t*e time and belie/in. in me ,*ic* led me to come so far for furt*er study in Britain I ,ould lie to t*an Mr Seba 6andey- Ms 7iu #on. 5*en and Mr San8eep *ital for t*eir ind *elp and effort to mae my researc* successful I am also t*anful to Mr Sas*il 5**etri and Mr 'is*an S*arma for t*eir support and *elp to accomplis* my tass My special .ratitude .oes to Ms Anita +imbu for bein. al,ays supporti/e





















A&str$ct

9*is dissertation is primarily focused in to t*e *ousin. prices of %3 *ousin. maret and t*e lendin. situation durin. t*e financial turmoil &i/in. more emp*asie in t*e *ousin. pricest*is dissertation t*orou.*ly e;amines t*e *ousin. boom and bust of t*e %3 *ousin. maret eepin. into mind t*at t*e *o, muc* credit crisis affected in to it It also attempts to understand t*e /olatility of %3 *ousin. maret alon. ,it* t*e credit a/ailability in t*e maret ue to t*e /olatile maret- t*ere is al,ays fluctuations occur in %3 *ousin. maret In contrary- t*is researc* tried to analysis t*e *ousin. prices trend alon. ,it* t*e type of mort mort.a. .a.es es ,*ic ,*ic* * are a/ail a/ailabl ablee in t*e t*e mar maret et 9*e 9*e resea researc* rc* *as *as been been .one .one t*ro t*rou. u.* * to understand ,*et*er t*ere is *ouse prices o/er/alued or not 9*ere are se/eral factors t*at affects t*e *ouse prices from demand and supply sides- researc* tried to outline t*ose factors and t*eir impact on *ouse prices ue to inade




















Table of Contents 5*apter=1 5*apter=1   1 1 I'9#O%59IO' I'9#O%59IO'    1 1 1 Bac.round of t*e Study Study    1 110 110

5redit 5runc* 5runc* an o/er/ie, o/er/ie,             1 1

111 #eal state at &lance &lance  2 12 Statement of t*e problem problem  > > 1> Ob8ecti/es of t*e study study ! ! 1! #esearc* 7uestions 7uestions   !  ! 1 6urpose of t*e study study     1? Or.anisation of Study Study    5*apter 2 2     @ +iterature #e/ie, #e/ie,  @ @ 20 Introduction Introduction    @ 21 %3 $ousin. Maret- 'ature and 9rends (6re=ominance of $ome O,ners*ip) 22 $ousin. Bubble Bubble    11 2> $ousin. 6rice Measurement Measurement  1> 1> 2>1 emand and Supply 9*eory of %3 $ousin. Maret1! 2! Factors Affectin. $ouse 6rices 6rices 1@ 2!1 Factors from emand Side Side  1@ 2!2 Supply Side Factors Factors  2" 2" 2 olatility olatility of t*e %3 $ousin. Maret Maret 2 21 'ational 6icture 6icture   2 22 #e.ional and local de/iations in t*e $ousin. Maret Maret>0 >0 2> $ousin. Maret and t*e #esidential Mobility Mobility>1 >1 2? %3 Mort.a.e +endin. +endin.   >2  >2 2" Summary Summary   >? >? 5*apter > >    >" >" #esearc* Met*odolo.y Met*odolo.y   >" >" >1 Introduction Introduction    >" >2 #esearc* Strate.y

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>>2 Interpreti/ism Interpreti/ism   >@ >@ >! ustification of 9opic 9opic    > > #esearc* esi.n esi.n   > > >? ata 5ollection 5ollec tion and Met*ods Met*ods  !0 >?1 6rimary ata ata   !0 !0 >?2 Secondary ata ata !0 !0 >" 5ase Study Study  !1 !1 >@ ata Analysis Analysis  !1 !1 > +imitation of t*e Study Study  !2 !2 5*apter ! !    !> !> ata Analysis Analysis    !> !1 Introduction Introduction    !> !2 %3 $ousin. maret before t*e 5redit 5runc* 5runc*!> !> !21 $ousin. 6rices of %3 $ousin. 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O/er aluation aluation of $ouse 6rices in %3 *ousin. maret2 maret2 ! &ross Mort.a.e +endin. of %3 %3> > !? 9rend Analysis of %3 *ouse prices prices   !" e=trend Analysis of %3 *ouse prices? prices? !@ Future of %3 $ouse 6rices 6rices " " ! Summary Summary   @ @ 5*apter        Summary and 5onclusion 5onclusion    1 Summary Summary     2 5onclusion 5onclusion    ?0 ?0 5*apter ? ?    ?2 ?2 #ecommendations #ecommendations   ?2 ?2 5*apter "

?>





















)ist of Fi%ures

Fi.ure 1: 1:

istribution of ,ellin.s by by tenure=n.land and Cales- 2001=200@

10

Fi.ure 2:

%3 *ouse prices- 6ercenta.e c*an.e year on year

1>

Fi.ure >:

emand for *ousin.

1

Fi.ure !:

5*an.es in emand

1

Fi.ure :

Supply of $ousin.

1?

Fi.ure ?:

S*ifts in Supply

1"

Fi.ure ":

emand and Supply .rap*: Supply eficiency

1"

Fi.ure @:

5orrelation bet,een &6 and $ouse 6rices

1

Fi.ure :

5onsumer 5onfidence and 5onsumption

21

Fi.ure 10:

i/orce #ates- n.land and Cales =200

22

Fi.ure 11:

'umber of i/orces by A.e in n.land and Cales- 200

2>

Fi.ure 12:

Marria.es- %3= 200

2!

Fi.ure 1>:

+on.=term international mi.ration- %3 (2000=2010)

2

Fi.ure 1!:

mployment and %nemployment rate of n.land- 1"1=2010

2?

Fi.ure 1:

,ellin. completed in %3- 1!=200

2@

Fi.ure 1?:

Annual 'et ,ellin.s 2000D01=200D10- n.land

2@

Fi.ure 1":

9ypes of t*e Mort.a.es in %3- 200>

>!

Fi.ure 1@:

'ation,ide A/era.e $ouse 6rices of %3- 2000=200"

!!

Fi.ure 1:

$alifa; A/era.e $ouse 6rices of %3- 2000=200"

!!

Fi.ure 20:

Annual percenta.e c*an.e in %3 *ouse prices- 2000=200"

!

Fi.ure 21:

+endin. to Indi/iduals- 2000=200"

!?

Fi.ure 22:

'ation,ide $ouse 6rices 200"=2010

!@























Fi.ure 2:

$alifa; 6ercenta.e 5*an.e in Mont*ly $ouse 6rices- 200@=2010

0

Fi.ure 2? 2?:

'ation,ide 6er 6erccenta.e a.e 5* 5*an.e in in Mo Mont*ly $ouse 6r 6riceses- 20 200@=2010

0

Fi.u Fi.ure re 2": 2":

Annu Annual al 5*an 5*an.e .e in 6erc 6ercen enta ta.e .e of A/era. era.ee $ou $ouse se 6ric 6rices es of %3%3- 200 200"= "=10 10

1

Fi.ure 2@:

'et +endin. to Indi/iduals- 200@=2011

2

Fi.ure 2:

%3 $ouse 6rice arnin.s #atio- 1@0=2010

>

Fi.ure >0:

%3 &ross Mort.a.e +endin.- 2002=200@

!

Fi.ure >1:

&ross Mort.a.e +endin.- %3- Au.=2010 to Au.=2011

!

Fi.ure >2:

9rend of $ouse 6rices of %3- 2000=2010

?

Fi.ure >>:

e= 9rend of $ouse 6rices of %3- 2000=2010

"





















)ist of T$&les

9able 1: 1:

istribution of of , ,ellin.s by by 9enure= n n.land an and Cales- 20 2001=200@

10

9able 2:

%3 Interest #ates- 10=200

20

9able >:

9otal +endin. to Indi/iduals- 2000=200"

!?

9able !:

A/era.e $ouse 6rices 5omparison

!@

9able :

9rend and e= 9rend of %3 $ouse 6rices- 2000=2010



9able ?:

Future of %3 $ouse 6rices

"





















Chapter-1 INTRODUCTION

1. Background of the Stud 9*is c*apter *as been cate.orised into different *eadin.s to mae t*e ,*ole picture more clear and understandable 9*e bac.round of t*e study also *as been se.re.ated into t,o sub= *eadin. to produce reliable outcomes re.ardin. t*e topic It is also aimed to mae clear t*at *o, muc* credit crunc* and t*e *ousin. maret are related eac* ot*er in terms of se/eral e;tent

1.1.! Cred"t Crunch an o#er#"e$

9*e ,orld economy is massi/ely *it by financial crisis as credit crunc* in autumn of 200",*ic* leaded a condition of financial instability in t*e ,orld4s economy mostly to %SA- %3 and uropean countries conomists and researc*ers depict t*at t*e main cause of t*e credit crunc* .oes to e;cessi/e lendin. by %S bans on sub=prime loans for t*e property maret especially to t*e *ousin. maret 9*e residential property maret reac*ed at suc* point,*ic* created a situation of disturbance to financial marets to obstruct t*e maret4s aptitude to allocate capital capital 9*e real estate maret maret of %3 ,as t*e most boomed boomed in t*at particular particular period 9*e credit crunc* is a conse




















property ,ere .oin. *i.* day by day Many Man y bans *ad seen t*ere is better opportunity to in/est pro/idin. sub=prime loans to t*e people At t*e end- t*ose people ,*o too t*e mort.a.e loan or sub=prime loan could not pay bac to bans Bans became banrupt 5redit crunc* officially announced on  t* of Au.ust 200"

1.1.1 Real %state at &lance

#eal estate is itself Eland4 and Et*e property4 ,*ic* is abo/e t*at land It can be cate.orised into t,o types and t*at is commercial property and residential property Basically t*e buyin. and sellin. of *ouses and property for commercial purpose is called commercial property or real estate 9*ose propertiesproperties- ,*ic* ,ere in process process of buyin. buyin. and sellin. for t*e purpose of residenceresidence- are residential residential property property It can be an e;istin. business buildin. buildin. or empty land for businessD commercial use C*ene/er ,e tal about property and property maret- /acant land al,ays taes place in to it because it is inte.ral part of real estate acant land can be used eit*er for commercial purpose or residence acant land is t*at ,*ic* *as free space and not used for any purpose before 9*e property maret *istory .oes bac to 10?? and t*at before 9*e period ,*ic* is called as EAll .ood comes from n.land4 t*at is actual drift of constructin. a realm- ,*ic* is suitable to say t*at t*e be.innin. of real estate After t*at or.anised *ousin. maret and fee simple o,ners*ip came up in n.land- ,*ic* is .enerally called t,o t*in.s from n.land in real estate *istory At t*at period to o,n t*e real estate ,as not as easy as lie ,e do in recent years 9*ere ,ere no suc* t*in.s lie money to buy suc* lands and areas 9*ere ,as not monetary price for real estate After t*e year 10??- Cilliam decreed *imself as in. of t*e n.land and t*e all areas or property ,it*in n.land is re.ard to *im and all people ,*o are inside n.land s*ould be remain as *is tenants 9*is created to emer.e t*e Feudal system on





















6roperty maret is al,ays *u.e financial maret around t*e .lobe in recent days Se/eral up and do,n *as been already emer.ed emer.ed lie property property bubble and crisis 9*e credit crunc* is an e;ample of *ousin. bubble bet,een early 2000 to mid 9*e term bubble is ,idely used in real estate industry ,*ic* simply means about to burst Ce do .et /ery clear picture t*rou.* t*e term bubble t*at is ne, to maret but .i/es symptoms of financial crisis in near future $istory clearly states t*at t*e financial crisis al,ays do occur due to rapid c*an.e in prices of real estate- t*at s*ould be increase in prices apan and &ermany ,ere already *it by crisis due to t*e same reason It is /ery clearly no,n t*at *o, property maret is /olatile in terms of finance and economy (Frascati- 200) ue to its maret /olatility especially in %3- t*e *ouse prices ,ere .one up and t*e crunc* *it most se/erely /en t*ou.* t*e sub=prime loan ,as started in %S but t*e 5redit crunc* *it most se/erely to t*e %3 *ousin. maret

1.' State(ent of the proble( After t*e massi/e *it of credit crunc* around t*e ,orld mainly to urope and America- t*e financial maret *as been suffered by economic c*aos ue to t*e price bubble in *ousin. maret of %SA and %3 lead to t*e crisis crisis  As it is no,n- %3 *as t*e utter /olume of increase in price of *ousin. property in t*e mid of t*e 2000 as bubble Bans ,ere pro/idin. mort.a.e lendin. massi/ely to t*e people and t*e maret ,as continuously bubblin. It reac*ed to t*e boom line In/estors for t*e property maret ie bans ,ere t*inin. t*at t*e property maret is .oin. up so t*ey made made in/estment on property maret massi/ely 9*e financial marets are *i.*ly on to turmoil in in/estment maret O/er t*e year of [email protected] " trillion %S dollar *as been ,iped off to t*e stoc maret due to t*e credit crunc* Fall in t*e /alue of s*ares in +ondon e;c*an.e is most *ei.*tened amon. t*e banin. and real estate sectors 9*at ,as t*e situation of s*arper t*an e;pected do,nturn in %3 property























financial maret So- it is ob/ious t*at t*e %3 *ousin. maret is /ery muc* /olatile 9*is dissertation is also .oin. to address t*e /olatility of %3 *ousin. property After t*e careful study and analysis- t*is researc* ,ill try to address t*e impact of credit crunc* on %3 *ousin. maret ,it* ey findin.s t*rou.* t*e conclusion and recommendation of t*is researc* in possible e;tent

1.) Ob*ect"#es of the stud 9*is researc* is basically focused ,it*in *ousin. prices of %3 ,it* boom and bust- t*e *ousin. maret /olatility of %3 and t*e mort.a.e lendin. structure G practice in to t*e same maret 9*e core ob8ecti/es of t*is dissertation are as follo,s: 1 9o re/ie, re/ie, t*e concept conceptual ual frame,o frame,or r of t*e mort.a.e mort.a.e lendin lendin. . system of %3 to,ards t*e *ousin. maret 2 9o e;amin e;aminee t*e t*e *ous *ousin in. . price pricess of %3 unde underr pre= pre=cri crisis sis and post post crisi crisiss to understand t*e *ousin. boom and bust > 9o analysis analysis t*e *ousin *ousin. . prices prices trend pre and and post crisis in %3 ! 9o analysis analysis t*e *ousin *ousin. . trend trend pre and and post post crisis in %3





















C*ile t*e %3 *ousin. maret is in do,nturn after t*e credit crunc* and it is realised t*at t*e main cause for t*e economic economic turmoil turmoil in %3 ,as t*e e;cessi/e sub=prime sub=prime lendin. in %S and *ousin. price bubble in %3 as ,ell 9*e credit limit situation in financial maret of %3 is t*e most most se/er se/eree effe effect ct .i/e .i/en n by t*e t*e credi creditt crunc crunc* * 9*e 9*e curre current nt *ous *ousin in. . mar maret et is slo, slo,ly ly o/ercomin. t*e financial do,nturn in property maret of %3 but due to t*e maret /olatility it can4t be said t*at t*e future ,ill not be t*e same as it is occurred in fe, years a.o 9*is dissertation is carried on eepin. deep ,it*in reac* into t*e related terms and areas of %3 *ousin. maret suc* as mort.a.e- *ouse prices and factors t*at affect in price of *ousin. property 9*e purpose of study is to understand t*e ob8ecti/es of t*e study and ans,er t*e researc*
1./ Organ"sat"on of Stud





















9*e second c*apter is t*e re/ie, of literature re.ardin. %3 *ousin. maret ,it* t*e factors affectin. to t*e *ouse price .ro,t* in %3 It also describes t*e *ousin. maret conte;t and structure of %3 alon. ,it* t*e mort.a.e lendin. system and t*e nature of %3 mort.a.e rates 9*is section of t*e study also tries to .i/e t*e relations*ip bet,een of supply and demand de mand of *ousin. maret of %3 9*e literature litera ture re/ie, .i/es fe, description of /olatility maret of %3 *ousin. and tries to ans,er t*e researc*
9*is c*apter is all about *o, t*e researc* is .one t*rou.* durin. t*e researc* period C*at ind of met*odolo.ies *as been applied and ,*at ind of data collection *as been done are also mentioned in t*is section of t*e study Mainly t*e researc* met*odolo.y e;plains t*e researc* strate.ies and type of met*odolo.ies ,*ic* is suitable suitable for t*is dissertation dissertation topic and t*e limitations limitations t*at *a/e been occurred occurred durin. t*e researc* Data Analysis Analysis

9*e fourt* c*apter re.ardin. data analysis is all about analysin. t*ose data ,*ic* are related to t*e topic and processin. t*em to .i/e an effecti/e outcome ans,erin. t*e





















9*is section of researc* ,ill pro/ide some recommendations ,*ic* mi.*t be fruitful in %3 *ousin. maret study 9*is part tries to produce some ideas and commendation t*rou.* t*e *elp of conclusions and findin.s of t*e researc* ,*ic* are carried out by t*e researc* itself





















'.! Introduct"on 9*e %3 *ousin. maret *ad been boomin. in early of 20004s ,*ic* rate ,as muc* faster t*an t*e *ouse*old incomes 9*e cras* of early 104s ,as dramatic and t*e %3 *ousin. maret *as sta.ed after t*at dramatic cras* ,it* implausible resur.ence (5ameron- 200)9*e %S *ousin. maret ,as continue to bein. plummet and most of t*e %3 companies ,ere also participatin. eit*er directly or indirectly in t*e *ousin. boom of t*e %S %S 9*ere ,as a situation ,*ere it ,as feelin. lie t*e das* in re






















or supply ,ill tae little bit lon.er t*an ot*er marets $ouses are normally assets for e/ery indi/idual around t*e .lobe and it is t*e same ,it*in t*e %3 ,*ic* pay t*e income 9*e amount ,*ic* comes by rent and o,ner sa/es it bein. o,ner of t*e *ouse s*ould replicate t*e t*e pote potent ntia ials ls of futu future re *ous *ousee rent rents s In t*e t*e cont conte; e;tt of %3%3- t*e t*e o,ne o,ners* rs*ip ip of *ous *ousee is comparati/ely *i.* to ot*er countries 9*ere is al,ays *i.*er ris on *ousin. maret of %3 prices may .o up and fall do,n s*ortly So it is true t*at t*e %3 *ousin. maret is /ery distincti/e in se/eral ,ays for numerous reasons ue to t*e structure of property maret and mort.a.e maret t*ere ,ill be a situation ,*ere easily *ousin. boom may occur $o,e/er- it is more crucial to understand t*at t*e *ousin. prices doesn4t continuously increase but t*ey ,ill in t*e lon. run fall do,n .i/in. a dramatic collide to t*e *ousin. maret (5ameron200)





















200 1?" "1 >" 1@ 2! 12 20 200? 1"" "0 >" 1@ 2? 12 211 200" 1@" "0 >@ 1@ 2" 1> 212 200@ 1" ?@ >@ 1@ >0 1! 21! Table Table 1: Distribution of Dwellings, by tenure- England and Wales, Wales, 2001-2008 (Mintel, 2009 9*e abo/e tables states s tates t*at t*e d,ellin.s in n.land and Cales are continuously .ro,in. till t*e 200@ from 2001 alon. ,it* t*e dissection of different t ypes of d,ellin.s It is clearl y seen t*at t*e o,ner o,ner dominance dominance in t*e %3 $ousin. maret maret is *i.*er t*an ot*ers ot*ers %3 *ousin. *ousin. maret can be e;plained t*rou.* t*e follo,in. dia.ram





















fifteent* in a poll of property e;perts e;perts /oted for by t*e %rban +and +and Institute(%5+) and 6,5 (9*omas- 200@) Accord Accordin. in. to t*e &leni. &leni.an an (9*e (9*e %3 5onstru 5onstructio ction n Inform Informatio ation n Ser/ic Ser/icee- 200@)200@)- pri/ate pri/ate *ousin. ,ere facin. *ard=*ittin. position increasin.ly ,it*  do,n in /alue of initial ,or onsite 9*e %3 Social *ousin. ,as also fallen do,n by 2 percent due to t*e noc=on effect of credit crunc* (&leni.an- 200@) 9oday9oday- e/en t*ou.* t*e landscape of %3 $ousin. maret maret loos /ery poles apart- t*e supply of ne, *ouses is fallen out drastically to its lo,est le/el since 120s On t*e ot*er *and- mort.a.e deposit needs *a/e blo,n up in past t,o decades and t*e Briton be e;pectin. to be almost !0 earlier t*an t*ey can ac> a raise of 2" o/er 200@ It is su..ested t*at t*e .o/ernmen .o/ernmentt needs to di. up institutional institutional in/estment in/estment





















9*e complete p*ase of $ousin. Bubble *as a life of ? years more or less An arc*etypal $ousin. Bubble .enerally is years of duration alon. ,it* 2 percent turn do,n o/er t*e follo,in. > years At t*e closin. sta.e of *urtle of *ousin. prices are around ten percent *i.*er t*an t*e ,*ere it ,as at t*e be.innin. (5ecc*etti- 200>) In many countries- *ouse prices ,ere *yped ,*ic* can be seen t*rou.* t*e ,anderin. relations*ip bet,een rents and t*e *ouse prices In relation to t*e Britain4s rent- prices of *ouse *it t*e record le/els alon. ,it* record le/el to t*e incomes to t*e %3 It ,as bein. *ard to landlords for main. money due to t*e fallen rental yields belo, t*e mort.a.e rates So t*at t*ere ,as a situation ,*ere in/estors ,ere prepared to buy t*e *ouses in lar.e number and and rent rented ed t*em t*em e/en e/en in loss loss due due to t*e t*e e;pe e;pect ctat atio ion n of incr increa ease se in *ous *ousin in. . pric prices es continuously- as a result t*ere ,ere massi/e transaction for property buyin. and sellin. (9*e





















!igure 2: %& 'ouse ri#es, ) #*ange year-on-year























used in %SA Accordin. Accordin. to t*e $edonic $edonic #e.ression met*odmet*od- t*e *ouse prices prices depend upon t*eir p*ysical features and spot ,*ic* assess t*e /alue Based on t*at /alue t*e *ouse is placed into t*e maret representin. t*ose attributes 9*e estimations are t*en used to assemble a price for artificial *ouse ,*ic* is *a/in. a representati/e amount of eac* feature 9*e met*od of Mi; Ad8ustment to measure *ouse prices- obser/es .roupin. t*e *ousin. prices into Ecells4 or Esets4 of study s tudy on *ouses ,it* e;act p*ysical c*aracteristic c*arac teristic and location C*en all data are allocated in a sample to call t*en t*e mean price of *ouses from e/ery cell























demand and *ouse prices 9*e opposite relations*ip can be mentioned in reference ,it* income and substitution effect ,it* all .oods (economicsonline)























("our#e:

http://economicsonline.co.uk/C http://economics online.co.uk/Competitive_ma ompetitive_markets/The_ho rkets/The_housing_market. using_market.ht ht  ml  9*e non price price determi determinan nants ts in *ousin *ousin. . demand demand includ includes es popula populatio tionn- income income of *ouse*olds- social trends- a/ailability of credit- fas*ion- price of substitutes- buy=to=let demand- e;pectations and interest rates 9*ese factors ,ill be described t*orou.*ly













































.ro,in. demand in t*e maret ,*ile t*e price is p2 ,*ere <2 is e;pected represents t*e demand of indi/iduals for t*e *ousin. maret if t*e prices ,ill stay at p1 9*e supply deficiency or s*orta.e is s*o,n s*o,n by t*e difference of <>=<1

'.+ 7actors 89ect"ng 2ouse r"ces 9*ere are al,ays t,o sides to understand t*e factors t*at affect on *ousin. prices demand









































































Table Table 2: %& interest rates, 1990-2009

















































emo.rap*ic factors suc* as di/orce rates- immi.ration- life e;pectancy- c*ildren































































































































































































































































































































































































































































!igure 28: +et +et ndi4iduals, 2008-2011 2008-2011$$ ?note: 2011 is only u to ugust$ ugust$ "our#e: an. of England

Accordin. to t*e fi.ure 2@- in t*e year 200@ is comparati/ely lo, t*an t*e pre/ious years due to t*e financial c*aos But t*e year 200 and 2010 seems more do,n in t*e prospect of loan or credit a/ailability urin. t*e boom period most of t*e buildin. society and bans ,ere lendin. in *i.*er rate but after t*e crisis arose in t*e autumn of 200"- t*ere ,as almost no credit credit a/ailab a/ailabilit ility y Furt*e Furt*ermo rmorere- in 200 200 t*e consum consumer er credit credit is do,n do,n to =0 =0 ,*en ,*en follo,in. year *ad  But recent re cent periods (up to Au.- 2011)- is seem to be incre asin.

+.+ O#er ;aluat"on of 2ouse r"ces "n U hous"ng (arket

It is unambi.uous t*at not only %3 *ousin. maret is under.one to crisis but ,*ole %3 economy due to t*e sub=prime lendin. collapse 9*e reason be*ind t*e do,nturn in property maret is t*e *ouse prices 9*ere ,ill be a




















!igure 29: %& *ouse ri#e earning ratio, 1980-2010 1980-2010 Main. base for t*e fi.ure 2- t*e *ouse prices to income ratio bet,een 1@0 and 2010 alon. ,it* t*e lon. term a/era.e *ouse prices to income ratio ,*ere all indi/idual years compared t*e ratio is around >> in 1@> and ?2 in 200" ,*ic* produces an a/era.e *ouse price income ratio ie !"" urin. t*e boom period of 200"- t*e a/era.e *ouse price to income ratio is >1 .reater t*an t*e lon. term a/era.e 9*is statistics depicts t*at *o, muc* %3 *ouse prices ,ere o/er= /alued In 200@- t*ere ,as lo,est point in *ouse prices ,it* ratio rat io ?1 but t*en t*e maret ,as still o/er=/alued by 2@ 9*e ratio ept declinin. till 200 t*en after a.ain started increasin. to some e;tent ,it* ratio of  and t*ere ,as o/er=/alued maret by ! From t*e abo/e analysis- it can be said t*at t*e %3 *ousin. prices ,ere o/er= /alued in lar.e e;tent ue to suc* o/er=/aluation t*e *ouse prices ,ere boomed and in/ited t*e financial crisis ,it* do,nturn of %3 *ousin. maret

+. &ross 3ortgage 0end"ng of U

After t*e credit crisis in t*e *ousin. maret- t*e economic do,nturn is facin. tou.* years for to o/ercome t*e crisis Santander (2011)- reports t*at t*e .ross mort.a.e lendin. *as been dropped by 21 in t*e first si; mont*s from a year a.o It indicates t*at t*e credit crisis is still not o/er yet because t*e mort.a.e lendin. is still eepin. droppin. in %3 *ousin. maret





















!igure /0: %& ross Mortgage " and it reac*ed >?>-!0 in 200" ,it* *i.*est lendin. since 2000 In year 200@- it came do,n to 2"-@ ,it* =212  c*an.es It indicates t*at t*e mort.a.e lendin. in %3 ,as slo,ed do,n in 200@

!igure /1: ross ross Mortgage




















9*e recent statistics a/ailable from t*e 5ouncil of Mort.a.e +enders- t*e mort.a.e lendin. in %3 mort.a.e maret is sli.*tly increasin. ,it* compare to be.innin. of 2011 In February2011 t*e .ross lendin. ,as lo,est ,it* >?-@00 but in Au.ust Au.ust it is increases up to 1>!-000

+./ Trend 8nals"s of U house pr"ces

9*e trend analysis of %3 *ouse prices t*rou.* t*e panel data ,it* t*e *elp of time series analysis analysis is a met*od to predict t*e future *ouse prices Accordi Accordin. n. to t*e data a/ailable from t*e t,o buildin. societies ie 'ation,ide and $alifa;- it is possible to dra, an outline for future *ouse prices in %3 *ousin. maret For t*is- an independent /ariable is .i/en as P to calculate t*e trend of *ouse prices In ot*er *and- t*e dependent /ariable is .i/en as J 9*e e
Table : Trend and De-Trend of %& *ouse ri#es (figures are in @, 2000-2010 9*e trend of %3 *ouse prices are in increasin. rate based on 'ation,ide and $alifa; buildin. society 9*e trend of 2010 is  1@>-""> ,*en t*e a/era.e *ouse price ,as 1?2-"?> accordin. to 'ation,ide





















!igure /2: Trend Trend nalysis of 'ouse ri#es of %&, 2000-2010 (based on +ationwide and 'alifa= data$ 9*e fi.ure depicts t*at t*e trends are in increasin. rate but t*e *ouse prices of %3 accordin. to 'ation,ide is in lo,er rate ,it* compare to t*e $alifa; 9*e $alifa; *ouse prices trend is in fi.ure strai.*t to t*e ! de.ree of an.le But t*e 'ation,ide is sli.*tly lo,er It means t*e *ouse price trend is in increasin. trend so far but in slo, rate

+.< De-trend 8nals"s of U house pr"ces

e=trend analysis is all about t*e *ouse prices fluctuations bet,een series of periods ,it* actual fi.ures 9*e *ouse prices of %3 from 2000 to 2010 can be analysed t*rou.* t*e de= trend analysis to understand *o, muc* t*e *ouse prices ,ere fluctuatin. ,it*in a decade But de=trend analysis doesn4t allo, to analysis for future based on present and *istoric data























Fi.ure >>: e=trend of %3 *ouse prices- 2000=2010 (Based on 'ation,ideD$alifa;)

+.? 7uture of U 2ouse r"ces

9*is researc* is tryin. to predict t*e future *ouse prices of %3 based on pre/ious prices t*rou.* t*e trend analysis Since t*e credit crunc* emer.ed it *as been impacted to t*e %3 *ouse prices from se/eral aspects 9*e do,nturn on %3 *ousin. maret is also an outcome to t*e crisis /en t*ou.* t*e turmoil affected se/erely *ousin. maret- t*e *ouse prices are dropped do,n but in .eneral it is .oin. up to reco/er t*e pre/ious c*aos





















If t*e trend is continued up to t*e year 2020 t*e a/era.e *ouse prices ,ill be  2?-0> based on 'ation,ide It is 8ust a prediction based on t*e trend of *ouse prices bet,een 2000= 2010 It may not be t*e fact and actual $o,e/er$o,e/er- it can be said t*at t*e *ouse prices prices ,ill come up to t*e le/el of 200" in year 2012 accordin. to t*e trend analysis

+.@ Su((ar 9*e data analysis c*apter *as been dra,n t*e data ,*ic* are a/ailable from se/eral sources to meet t*e ob8ecti/es of t*e researc* alon. ,it* producin. compre*ensi/e ans,ers for researc*




















Chapter  Su((ar and Conclus"on .1 Su((ar A sound financial maret is t*e bacbone for t*e economic .ro,t* and prosperity for any of t*e nation around t*e .lobe If t*ere is any instability instability occurs in to t*e financial financial maret t*ere liely to be increase in se/eral financial disarrays ,it*in t*e nation %3 *ousin. maret plays /ital role for t*e economic de/elopment of t*e %3 But unfortunately- t*e collapse of sub= prime lendin. maret in %S is tri..ered tr i..ered as t*e main reason reas on for t*e recent financial crisis 9*e credit crunc* *as been emer.ed t*rou.* t*e e;cessi/e lendin. in *ousin. maret As it is no,n t*at t*e %3 *ousin. maret ,as also t*e /ictim of t*e economic c*aos 9*e *ousin. bubble of t*e *ouse maret ept increasin. till t*e *it by credit crunc* and it is found t*at is still on.oin. but in slo,er rate 9*rou.* t*is researc*- it can be seen t*at %3 *ouse prices s*o,ed a solid increment bet,een 1@ and t*e t*ird




















mort.a.es to income at lo,er base 9*e /olatility of t*e *ousin. maret of %3 is anot*er reason to eep *ouse prices increasin. as t*ey *a/e 9*e literature re/ie, depicts t*at t*ere is supply side ,as not ade-22? mort.a.es in Au.ust 2011 $o,e/er- t*e mont*ly appro/al for mort.a.es remains lo,er by 2D> t*an t*e a/era.e of 200"

.' Conclus"on 9*e ob8ecti/es of t*e dissertation are to find out t*e *ouse prices fluctuations t*rou.*out t*e decade decade to underst understand and t*e *ousin *ousin. . boom boom and bust of %3 alon. alon. ,it* ,it* mort. mort.a.e a.e lendin lendin. . frame,or frame,or and scenario scenario ,it* *ousin. trend of %3 9o satisfy t*ese ob8ecti/esob8ecti/es- t*e researc* *as been .one t*rou.* t*e analysis of *ousin. prices since 2000 to 2010 9*e analysis portrayed t*at t*ere ,as immense *ouse prices boom up to t*e year 200" In 200@- t*e *ouse prices fallen do,n and a.ain in 2010 it is increased in fe, e;tent 9*e analysis of annual percenta.e c*an.e in a/era.e *ouse prices of %3 *ousin. maret also s*o,s t*ere ,as .reat percenta.e c*an.e in increasin. trend since 2000 to 200" and in 200@ and 200 t*ere are immense ne.ati/e c*an.es in accordance to 'ation,ide Buildin. Society 9o satisfy t*e *ousin. prices trend- t*e trend analysis *as been done in data analysis c*apter ,*ic* states t*at t*e *ousin. prices are still increasin. e/en t*ou.*t t*e c*aos *it t*e property maret se/erely 9*is means t*at t*e %3 *ousin. maret *as been reco/erin. t*e turmoil turmoil slo,ly but e/entually e/entually t*is increasin. increasin. trend could be t*e ,orryin. fact 9*e de=trend analysis *as been carried out to reco.nise t*e fluctuation bet,een *ouse prices durin. t*e





















%3 mort.a.e maret is dependent on t*e /ariable rate More t*an "0 mort.a.e maret is co/ered by /ariable rate It is concluded t*at lendin. t*ose consumers ,*o ,ere not eli.ible to *old t*e mort.a.e loans ,it* optional mort.a.e loan suc* as sub=prime loan by se/eral buildin. society s ociety led t*e %3 *ousin. maret into t*e financial turmoil ,it* almost no credit accessible maret In contrary- t*e %3 *ousin. maret is impro/in. slo,ly in recent years despite of t*e financial do,n turn in %3 *ousin. maret Moreo/er- t*e %3 *ousin. maret is no,n as full of instability in financial acti/ities But it can be e;pected t*at in near future- t*e turmoil ,ill be abolis*ed and t*en t*e sound financial stability ,ill be set up alt*ou.* t*e maret is *i.*ly /olatile























Chapter / Reco((endat"ons

9*e recent credit crisis is not ne, for t*e %3 *ousin. maret- t*ere ,ere already se/eral property maret collapses *as been occurred and a nd it is o/ercame 9*e main cause of t*e credit crisis is elicited to t*e sub=prime loan maret of %S and t*e same .oes to %3 as ,ell 9*e financial maret is also associated ,it* t*e national economy in lar.e e;tent It is ob/ious t*at t*e primary reason *as to blame to t*e mort.a.e and *ousin. maret But not only t*e mort.a.e and *ousin. marets are alone responsible to t*e recent do,nturn in economy It is understandable t*at t*ere are not effecti/e political- re.ulatory and economic situations for t*e maret 9*e appre*ension continues to perse/ere re.ardin. t*e financial instability of many bans and ot*er buildin. societies ,it*in t*e %3 economy alon. ,it* *ousin. maret 9*ese concerns staunc* from t*e point of institutional e;posure ,*ic* is called as to;ic assets 9*e most effecti/e mana.ement for t*e to;ic assets stays be*ind a source of debate But it is clear t*at t*e t*orou.* action is re




















Chapter < ReAect"on

6ersonal learnin. e;perience al,ays sum up t*e no,led.e on t*e sub8ect matter to mae t*e study more fruitful It en*ances t*e le/el of understandin. alon. ,it* t*e presentation




















researc* is based on t*e secondary approac*- I *ad to do e;tensi/e researc*- se/eral case studies done by ot*ers and trace out t*e findin.s to satisfy t*e topic urin. t*e data collection period I *a/e .one t*rou.* tou.* c*allen.es But ,it* t*e *elp of t*e 5ity business library as researc* library- Britis* library and o,n campus based library- it is possible to collect data to e;emplify t*e dissertation 9*e online databases suc* as MintelOsiris- and bosco*ost etc t*rou.* t*e %ni/ersity of &loucesters*ire made t*e *urdle easier to access t*e re




















Anonymous- (1")- T*e %& 'ousing Mar.et: Cefors ital ital to 7urb olatility olatility and reare for EM% ROnline A/ailable A/ailable at: *ttp:DD,,,resor.uDsocietyDmediabriefin.sDpdfsD1"Dno/emberDmuellpdf (Accessed 02D0D2011) 02D0D2011) Aoi- 3- 6roudman- - lie.*e- &- (2001) W*y 'ouse ri#es Matter - Ban of n.land 7uarterly Bulletin- ,inter 2001- !1(!)- pp !?0=!? Ball- M- (200?)- Buy to +et: 9*e #e/olution= 10 Jears Jears on ROnline A/ailable at:

http://""".arla.co.uk/me'ia/85059/arla_#tl_report_2006.p'( (Accessed on 2D10D2011) Bernane- Ben S- and 5ara S +o,n (11)- 9*e 7redit 7run#*7run#* - Brooin.s 6apers on conomic Acti/ity- 11:2- pp 20=> Berry- S- and a/ey- M- (200!)- 'ow "*ould We We T*in. about 7onsuer 7onsuer 7onfiden#e7onfiden#e - Ban of n.land 7uarterly Bulletin: Autumn 200!- !!(>)- p2@2=20 Burton- - 3ni.*ts- - +eys*on- A- Alferoff- 5 G Si.noretta- 6- (200!)- Main. a Maret: 9*e %3 #etinal Financial Ser/ices Industry and t*e #ise of t*e 5omple; Sub=prime 5redit Maret7oetition and 7*ange7*ange - @(1)- pp >=2 5ame 5amero ronn- &&- (200 (200) ) T*e %& 'ousin 'ousing g Mar.et Mar.et:: E#ono E#onoi# i# Ce4iew Ce4iew-- epartm epartment ent of conom conomicsics%ni/ersity of O;ford





















5redit 5*oices- (2010a)- ariable ariable Trate Mort.a.es ROnline A/ailable A/ailable at:

http://""".cre'itchoices.co.uk/mort)a)es/)ui'es/varia#le$rate$mort)a)es.html (Accessed on 2D10D2010) iamond- B G +ea- M (12)- $ousin. Finance in e/eloped 5ountries: An International 5omparison on fficiencyfficiency- Fournal of 'ousing Cesear#*Cesear#*- >(1)- C*ole Issue conomics Online- T*e 'ousing Mar.et ROnline ROnline A/ailable at:

http://economicsonline.co.uk/Competitive_markets/ouse_prices.html (Accessed on "D10D2011) Ferrari- - and #ae- A- (May 1>- 2011)
http://""".pu#licnet.co.uk/(eatures/2011/05/13/local$housin)$market$volatilit*/ (Accessed on: 11D10D2011) 11D10D2011) Frascati- +- (200)-  (200)-  rief 'istory of Ceal Estate: T*e free "ile ;wners*i ROnline A/ailable from:

http://e+inearticles.com/,-$rie($istor*$o($eal$state:$he$ee$imple$

"nership  "nership Accessed on 01D10D2011. &leni.an- (200@)- !ewer (200@)- !ewer lanning ro4als ro4als Cefle#t Wea.ness: Wea.ness: uilding is set to de#line de#line-- October ?200@- Financial 9imes $aim$aim- 5- (2000)(2000)- Cesear#* Design: "u##essful Designs for "o#ial and E#onoi# Cesear#*Cesear#* - 2nd























Mc5art*y- onat*an and #ic*ard C 6eac*- (200!)- re 'oe ri#es t*e +e=t AubblesBG F#B'JAubblesBG F#B'Jconomic 6olicy #e/ie, 10(>): 1=1" Mintel- (200) >n4esting (200) >n4esting in roerty ROnline roerty ROnline A/ailable A/ailable on: *ttp:DDacademicmintelcomDsinatraDo;y.enUacademicDdisplayDidN>"!DdisplaytablesDidN>"!Ddis playDidN!?11Vfi.ure1> playDidN!?11V fi.ure1> (Accessed (Accessed on 02D0D2011) Munro- M- Ford- - +eis*man+eis *man- 5 G 3ofi 3arley 3arle y- ' (200)-
http://""".nation"i'e.co.uk/hpi/historical/ec_2008.p'( (Accessed on 2D0D2011) '$B5 (200@) 'e, $ouse Buildin. Statistics= Mont*ly %pdate= ecember ecember 200@ Office for 'ational Statistics- (1" Feb 2011) Di4or#es 2011) Di4or#es in England and Wales Wales-- 200 ROnline





















Step*ens- M- (200")- Mort.a.e Maret ere.ulation and Its 5onse>=>2 9*omas- - (Marc* 11- 200@)- Fear and Opportunity: %3 &loom 5ontrasts ,it* Optimism Optimis m lse,*ere- 6roperty Analysis Financial 9imes 9*,aites- &- and CoodCood- #- (200>) T*e Measureent of 'ouse ri#esri#es - Ban of n.land 7uarterly Bulletin- sprin. 200> Jin- # 3- (1@!)- 7ase "tudy Cesear#*: Design and Met*odsMet*ods - 'e,bury 6ar- 5A- Sa.e

Impact of Credit Crunch on UK Housing Market

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