In recent news it has been pointed out that the targets set for housing will not be met. The government has set a target of 3 million new homes to be built by the year 2020. It will approximately need 240,000 homes built a year to meet the target that was set, last year just over 200,000 new homes were built. Unless changes are made now it will be more then likely that the target set will not be met.
Home builders have recently decided to cut back on the new builds due to the reduced demand from the falling market. Mr Nickell, who heads the national housing and planning advice unit said “Unless local authorities are given a strong incentive to allow house building in their locality, it seems to me very unlikely that we will hit the housing targets………And if you don’t keep building these houses the prices just keep going up relative to people’s incomes” Mr. Nickell believes apart from the credit crunch affecting consumers, local authorities and councils are not offering enough incentives to encourage the building of new homes.
Recent government figures have showed that new building of new homes have been down 5% compared to the same time in 2007. A statement from the Home Builders Federation has predicted that the building of new homes is not expected to rise.
“Right now the credit crunch is stopping people from getting the finance that people need to buy homes……… Longer term we need a better business environment and less regulatory cost to get the industry moving” This statement from the federation is backed up by recent news of big players in the industry, Barratt Developments and Taylor Wimpey to be in huge amount of debt. These two major players carry between them a total of £2.5 billion debt which is significantly more then their total market value. The credit crunch not only has affected consumers but the industry itself, the pinch felt by members of the industry has already forced one of them to put a halt on the building of new homes.
A visitor site posted a comment on the article (London Property Prices: Are they dropping?), about our views of why the London Property Market is still strong and why it will always be.
“London is the financial heart of the European Union (EU) and capital of one of only four trillion dollar economies in the EU with an infrastructure to match. The business infrastructure is being improved even further, because of London being selected as the venue for the ultimate global sporting occasion.”
So we are going to expand on the comment raised, and look at several points on why London is a financial hub. We will cover the “ultimate global sporting occasion” i.e. the Olympics 2012 later. London is one of the worlds Financial Hubs, even though there is a big uproar about the credit crunch and fears of a looming recession. Estate Agent Savills, estimates that £2 Billion will be spent from the “City Crowd” for 2008. This means that desirable areas in London such as South Kensington, Kensington High Street, May Fair etc will still be in high demand, even though there is a great deal of speculation and dropping property prices with the overall UK Property Market.
London has become a strong financial hub in the EU, due to its strength in Banking and Finance. Areas such as Canary Wharf, and more traditionally “The City” (Bank, Liverpool Street etc) have been centres of Banking and Finance for decades. And with the strength and stability of the UK Sterling (£) it has many advantages over other countries when it comes to the Exchange Rate and Forecasting.
Looking at London, and why companies like to conduct most business in London. We are going to take a simple look at Time Zones. The world has now become so small and to do business internationally is becoming increasingly easier. London is GMT (Greenwich Mean Time), and if a business has to call Asia it is only 6-8 hours ahead and if the company has to call North America it is only 5-8 hours behind. However if you are in Asia and want to do business with North America, it is roughly 12 hours ahead/behind - and vica versa. So if you wanted to contact your business associate in Asia and you were in America at 9am, that would mean that you would have to be in the office at 9pm however if you were in London/UK you would have to be in the office at 2pm-4pm, which is within normal working hours. Something as simple as that has a big impact on why many companies want to base their Head Quarters in London.
A rocky road ahead, like most of us predicted the housing market is slowing down, the property craze seems to have run its course and the bubble is about to burst. For many of us we have witnessed a turn in the economy. With the current economic situation in terms of the credit crunch it is affecting mortgage lenders there is no question about that. The credit crunch in the US has had a huge effect in the UK, there have been stricter controls to whom banks lend to, there has been a steep drop in mortgage lending, with less than 3000 products offered to consumers today compared to May 2007 in which there were as much as 11,000 products. This has made it increasingly difficult for first time buyers to get on the property ladder as they will have to save a lot more for deposits or wait till they get a better paying job but waiting for that could be too late. As more of us are watching our spending carefully, there seems to be fewer buyers out there and this will eventually cause an excessive supply of homes with a lack of demand, which could result in the price of properties continuing to fall dramatically.
Another blow to our pockets is the intensity of the cost of living, noticeably the price hikes in everyday essentials such as petrol and food, with this in mind many of us are holding back, that means stepping away from the property market, keeping every penny in our pockets and being extremely conservative with our spending. It looks set that the UK is about to follow suit of the Americans and possibly head towards a recession.
Although the government has tried to stimulate spending within the economy by cutting interest rates to 5%, this may not necessarily improve the situation within the property market for home owners. Reduced interest rates as well as declining house prices, has not boosted spending or maintained property value which has had a knock on effect on the wealth effect in which people perceive themselves to be richer but in this case are worse off, in which case the wealth effect is playing in the opposite direction of the fall in house prices. An example of this is when, with a £100k mortgage and a drop of 0.25% in interest rates would lead to fall in monthly payments of £21. On the other hand a drop in house prices of 0.25% a month would lead to a loss of equity of roughly £250 on a £100,000 property. The home owner ends up paying £21 less then usual a month but the house price drops makes the interest rate cut redundant making the home owner lose equity in the long run.
With the current economic state, getting a mortgage has become incredibly difficult as lenders have become quite demanding to who they will offer mortgages to and when they do offer them, the rate will not be cheap. Despite this, its not all bad news, as property prices seem to be unstable, more people are turning to renting, this new trend has increased rental prices for landlords and seen the sales of buy to let market rise in the past few months.
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