The state of the UK housing market in 2016
The forces of demand and supply are the forces that determine the availability of mortgage credit in the UK housing market. These factors will continue to shape the price of housing this year. But how is this going to happen?
Supply is still running at half the demand. According to government stats, housing supply in England was at 136,830 for the year ending September 2015. This was considered a 0.8% drop compared to the previous 12-month period.
Construction activities significantly slowed down in the last half of the year 2015. Builders are incurring costs related to land, materials and limited supply of human skill. Although the U.K housing market is still building more houses compared to what happened during the financial crisis, most construction firms now say that there is slow activities due to limited labor supply.
Construction and the UK housing market
The construction sector is facing challenges, and therefore no one is expecting a sudden surge in construction activities this year. Among the many problems that the UK housing market is facing include limited supply of labor as well as strict implementation of planning rules or green belt protection (a law that is restricting the availability of land, even making it very expensive).
On the other hand, demand is rising due to the aging population and increased rate of migration.
Bank of England is likely to increase the cost of mortgage credit.
UK has a number of home buying schemes designed to help first time buyers acquire homes cheaply on mortgage credit.
On the other hand, the Bank of England has kept it at an all time low of 0.5% rate. This was to keep banks borrowing and economy moving.
But now that the economy is healing, the Bank of England is expected to raise its lending rate to prevent what they call ”bubbles forming in a boom”. This increment was expected to see the day by the end of 2015, although this never happened because of other factors. However, 2016 looks like the first time it shall be implemented.
And finally when it is implemented, it will see the demand going down since it will make mortgage debts quite expensive. However, considering the fact that this base lending rate will gradually rise fraction by fraction, this is not a guarantee that it will ease pressure on the available supply.
The UK economy is strengthening but facing external threats as well.
Employment rates are dropping, wages are rising and evidence of overall growth is being witnessed. External factors such as dropping oil prices are now affecting large British companies. This also affects the economies that the UK is doing business with.
All these are factors that are biting into the UK economy. If they erupted, they could adversely affect the housing and construction industry. Therefore, they have a direct effect on the UK housing market.