The UK property market crashed because of consumer banking fears, overpriced homes and a reduction in bank loans to potential homeowners. The housing prices in the UK had become so high that their correlation to the incomes of the average person had almost become non-existent similar to what occurred in the United States.
Consumer Banking Fear As Result of US Mortgage Crisis Undermines Confidence In UK Banks
The housing market in the United States started encountering sub-prime mortgage defaults, which had a detrimental impact on many of their banks. This situation in the United States became so devastating that banks required an infusion of government funds. The UK bank account holder who had been saving for their homes observed what was taking place in the United States and many withdrew their money from the banks, which thus reduced the assets of these banks. During this same time the UK housing market was operating on the precipice of a housing market crisis because of the discrepancy between housing prices and incomes.
Overpriced Housing In UK
The huge correlation between housing prices and the income of people purchasing homes in the UK provided many economic forecasters notice that a housing market crash and price adjustment was eventually going to occur. History has shown that whenever a large disparity between incomes and housing prices has existed a housing crash has usually been the end result.
The most recent property market crash occurred in 2007 but a 1989 market crash and one in 1973 before that preceded it. With each housing crash a similar disparity between incomes and housing prices was discovered and attributed to being a large part of the problem and resulted in a decrease of housing prices throughout the following housing crashes of up to thirty percent. Consumers were using a very large amount of their salaries to pay for their mortgages and this is always a sign of financial problems on the horizon. Banks as a result started to hoard cash as they became more aware of the financial troubles that were about to beset the UK.
Decrease In Bank Loans To Consumers & Increased Bank Costs
The banks started to change the lending criteria for clients because the borrowing costs for banks started to become more expensive and they had limited confidence that they could pass on this cost to their customers. The Bank of England kept the interest rate at a higher level than normal and thus this made it more expensive for banks to borrow money.
In years prior to the market crash the banks could always pass on these added costs to their clients but with the knowledge of the large discrepancy between incomes and the property prices and the fact that the price of food and oil were increasing at a far faster rate than salaries this strategy was not a good option.
As a result of the change in the economic environment banks made the loan criteria for potential home owners much more onerous as they held on to their cash to protect themselves from having a situation similar to that which occurred in the United States.
Due to the banks not wishing to lend, many homeowners have no option but to expand their existing living space by means of a loft extension or kitchen expansion, when they find their family growing, according to North London loft conversion firm owner Derek Harding. This is a good way to solve a problem with sace and it will also help keep the London property market on a more even keel, hopefully.
The UK property market crash was a result of an overdue market correction, which has made the housing property market ideal for new buyers, and those individuals who wish to buy homes for investment purposes as all home prices are now open for negotiation.