An Analysis of the Impact of London's Residential Property Prices over Property Purchase Decisions of Married Couples
The global real estate market has seen several transformations over the years while these changes have also affected the economies to a major extent. Throughout the globe, real estate market is one of the strongest markets and any repercussions in this sector can result in ripples spread across various industries as well. Analysts believe that in the real estate market of the UK and the world as well, one of the things that consumers should be concerned about is affordability. This is so because as the market makes its way to a new era of evolution, the prices are supposed to go higher and above anyone's approach (Peachey, 2017).
On the other hand, as the prices increase for many people, there is also a concern that since there is a trend of renting places in the UK rather than buying, the prices of houses for sale might also fall because of this shift in approach. The Financial Times Ltd(2017a) also mentioned in an article that there is a volatility in the prices of houses in London and this situation also persists for prime locations across the city as well. According to the Financial Times Ltd(2017b),UK’s housing market is expected to experience several ups and downs due to political conditions in the country including the elections. On top of that, some agents also show this concern that the prices might see some unforeseen changes in the near future (The Financial Times Ltd, 2017b).
With that level of uncertainty going around, it is not uncommon for the house prices to reduce the purchasing power of the consumers. At the same time, something that should be kept under consideration is that even if the prices are falling instead of increasing, the volatility is enough to create a downward spiral impact on the customers. This might be one of the reasons why families especially married couples are moving toward getting a rented place rather than buying a whole house. This is not only affordable but also makes it easier for them to manage their short and long-term finances.
According to Lee (2017), real estate markets across the world are so well integrated that most of the things happening across the globe are almost the same. The study shows that there is a convergence being observed in the market which shows that people are moving back to renting because of the prices. This seems like a consequence of how the income of the consumers in the real estate domain are being affected by the prices and how the pricing patterns have been playing a role in determining the purchase decisions of the customers (Lee, 2017).
Understanding how the prices in the real estate market of the UK is not only important to understand the direction in which the market is going, it will also help gauge how families make their decisions when it comes to getting a residential property. Blackledge (2016), reported in his book that there are several methods for property valuation. Additionally, understanding the valuation process is associated with the way market conditions are associated with people who form the consumer side. Hence, when one side of the market is going through some certain market scenarios, the others are inevitably affected. Translating that for London or the UK, London gets a significantly large portion of revenue from the real estate sector while it also attracts foreign direct investment from other countries. As the economy of London makes its way towards being a larger economy, it is important to make sure that the living conditions in the city are not tough for families (Blackledge, 2016).
For married couples, getting stability in life is very important and in terms of stability, the living condition is one of the most crucial factors that need to be taken into consideration. Since married couples have to keep their life plans in line including the place they live in, their purchasing decisions make a significant impact in the market. It applies to the property market in the UK as well. Therefore, this study is focused on analysing how the property market of the UK, specifically London affects the residential property purchase decisions of married couples. This will lead to a theoretically logical and practically doable explanation as to how the macro and micro-economic factors in the city get influenced by the housing sector and how that enters the national scale in an unnoticeable way.
The aim of the study is to understand how the income patterns and property purchase decisions of married couples depend on the real estate prices in London. This will not only allow analysing the role of the real estate market in the income allocation of the married couple but will also assist in developing a stronger understanding of the connection between the consumer market in the real estate sector and the consumer income patterns across the city and the country as well. The research question for the study will be as follows:
- What is the impact of London’s residential property prices over property purchase decisions of married couples?
The objectives of the study are as follows:
- To understand the role of London’s residential property in the UK’s economy.
- To explore how the purchase of residential property in London affects the British economic system.
- To observe how the property prices in London affect the property purchase decisions of married couples.
- To reach a logical inference by finding the answer to the research questions developed and provide a sound connection between the two main variables.
Since the economy of the UK is striving to grow on a constant trend and is a worth noticing market structure when it comes to real estate, this study will provide a detailed and unswerving snapshot into the real estate of the country. Also, although there are several studies available on the real estate of London and the UK, a study that specifically focuses on how married couples get affected by the residential property prices is well needed since not a lot of studies provide detailed analysis in that dimension.
After the financial crisis of 2008 took over the global economy, analysts across the world struggled to understand why this phenomenon occurred on such a wide scale and how come no one was able to predict it beforehand. After the crisis had gone out of control, many researchers provided analysis on how easily the crisis could have been spotted and predicted. However, since no one was able to communicate the concerns of the world before the shift, all the theories were not contributing to understanding how the situation changed. After the real estate crisis took over the UK and the whole world, the prices were one of the easiest targets of the catastrophe (Mason & Harrison, 2015).
Several studies show that there was a significant surge in the real estate prices and a significantly noticeable volatility was being observed in the industry. This volatility was not just limited to London but affected the UK. At the same time, something else that was observed in the real estate market was the increasing purchase trend of property in London and the UK and a higher number of people moving to the country. When it comes to the population of London, there is a wide variety of people moving to the city on a constant basis. For instance, while some people move to the city for their studies, others are married couples and are moving to the neighbourhood for stability and a new start in life. Studies reported that the city has observed a massive amount of revenues received in terms of the real estate market only. This makes more space to analyse how the industry works in London and how the consumer market is affected by the price patterns (Mason & Harrison, 2015).
Mason & Harrison (2015), mentioned that as the economy of London and the UK, in general, has gone through several transformations and has improved in so many ways, it is reasonable to say that this economy has a developed a strong connection with the consumer community. These connections and associations result in stronger micro and the macroeconomic bond between the two mainstreams in the real estate section of the UK. With the higher demand for property in the UK by married couples who are looking to move in and raise their family here, getting property is a major investment decision and therefore, every small change in the market has a strong influence on the way people make their decisions (Mason & Harrison, 2015).
According to Lersch & Vidal (2016), couples living in London and the UK face several issues while looking for a home for residential basis. While owning a home in London is expensive and not easy, married couples strive to have one because it makes their living easier and provides more stability. The longitudinal study conducted in the research led to the conclusion that 8% of the owners in the UK are sole owners of the house while a majority of owners are couples or have combined ownership. For couples, while the ownership is combined when they are together, they go towards owning different homes after separation. This also translates into the effect of prices of houses on couples when they are together and separated (Lersch & Vidal, 2016).
Studies also mention that while more economic resources make it easier to buy a house in London, prices of residential properties are still in a strong position to affect the buying decisions and income patterns of couples. This also brings up the need to make the property market more uniform and sustained that it does not go through so many changes which make the purchases impossible for the married couples. The study raises a valid point that along with being the property prices themselves out of the financial grasp of couples, other expenses that come with that house purchase make the situation even worse (Curtis & Pentecost, 2015).
Hantrias & Therese (2014), reported that married couples have to be very careful whenever they are buying a house at any place. This is so because they have to ensure that the investment they are making in the property is worth it and they will not regret it in the future. Also, they have to weigh all options at the same time. Due to this bargain and opportunity cost, buying property in London can be one of the most challenging processes. This is because residential places are not very cheap in the city. However, at the same time, London is a big city with many facilities and many people would like to move to London. This conflict leads to a complicated situation which puts pressure on the buying decision of couples.
Curtis & Pentecost (2015), discussed a significantly important point in their study and mentioned that there seems to be a strong relationship between the property prices in the UK and other resources that need to be associated with that property. For instance, if the residential locality is in a neighbourhood where most of the energy is generated from renewable energy sources, it is worth investing in the housing and buying a place that will cost less in the long term. On the other hand, if the house itself is cheap but other associated costs are much higher, the investment might not be a good decision. While evaluating the costs associated with the house, it should also be considered what part of their income will go to their transportation. Since London is a city known for its traffic issues and crowded roads, the issues of commute are essential to be taken into consideration because it might affect the income of the household for a longer period of time that the couple can possibly plan for (Curtis & Pentecost, 2015).
Buying and owning a house in London provides residential stability to the couple which also supports any sort of long-term plan that they might have. At the same time, since there is a lot of frequent volatility observed in the housing market in London, it is important that couples make rational buying decisions so that their residential properties do not get so badly affected by the market conditions that they are constantly put in a position to move from one place to another. Instead of having a relatively lower percentage, cohabitation is not a rare phenomenon in London. On top of that, these cohabitations in the city are also tended to be for longer terms which make a significant portion in the overall outlook of the industry (Lersch & Vidal, 2016).
Baker, Bentley, Lester, & Beer (2016), reported that a perspective towards the UK’s residential housing prices that gives more context to the already available literature. For instance, it is mentioned that if there is an increasing pressure on higher prices for residential property in some certain parts of the city or the country, it is very likely that there will be a locational inequality in the country. This is so because if more people are moving to disadvantaged areas because of higher prices across London, the dynamics of the city might not be as diverse as someone might expect them to be. The idea provided in the article makes sense because there is supposed to be a specific pattern in the residential market of London and no matter how random things might change, that changes are supposed to move in similar directions. Therefore, property dynamics are crucial to being associated to the housing affordability in London. It is not wrong to say that these prices of residential properties put a stronger impact on the vulnerable groups compared to other people for whom it is easier to get a house in any part of the city. That leads to a discussion that the way residential property prices affect the married couples in the UK are not as simple as they might seem (Baker, Bentley, Lester, & Beer, 2016).
In their study, Badarinza & Ramadorai (2016) discussed the demand of houses in London is not by local residents but by foreign customers as well. As there is a large number of people who come to the city for study, or work and need accommodation. In some cases, there might be many individuals looking for places to rent or buy while in others, married couples coming from across the globe might be looking to get a place for residential purposes. The study analysed that political conditions can also potentially affect both residential and commercial prices in the country. This is so because when political scenarios seem to be uncertain, foreign demand is supposed to decrease due to capital flight which in turn leads to a pressure on the market (Badarinza & Ramadorai, 2016).
When married couples are making a decision to buy a house in east London, they are most likely to do an income pooling. This income pooling process is very crucial and helpful if both men and woman are earning and have to divide their income into parts in order to sustain a healthy and stable life. Hence, property price patterns automatically lead to income distribution of couples and also lead them to do a comparative analysis of their earning streams which helps in the financial matters (Nicole, Aart, & Rigt, 2014).
There have been several analyses conducted on how the trends in prices of London’s property have been going through several transformations and what evolutions are further expected in the industry. Analysts believe that after going through the crisis, it is very likely that London’s property market is about to go through a whole new phase which will shape the future of the industry in general. It makes sense in a way that in a long-term, private equity firms and private investors are unnoticeably and unknowingly playing their part in bringing the economy back to a position where the customers are accommodated to the best way possible and a lot of active trade goes on in the industry. This develops a better path for families to go on while they strive to maintain their financial and residential needs (Bracke, 2014).
Under the analysis of how the market prices in the residential property industry and the income patterns of married couples in London are connected, many studies also cover the idea of how the market cycles are formed and what drives the entire model in a way that there is a synchronisation of this whole socioeconomic system. d'Amato (2015) reported that there is a natural cyclical behaviour persistence in the income patterns and property purchases in London. That cyclical behaviour might be one of the reasons the crisis was initiated in the real estate market. This is so because when the bubble built up gradually, no one was able to notice it and it was though that this is all normal. However, when it all happened and the market crashed, spectators were shocked to see what had happened. This situation affected married couples in the worst way because they had to manage their daily expenses and were also not in a position to expect locational stability (d'Amato, 2015).
While comparing the housing market to its effects on married couples, a connection develops along the lines of the association of these residential house prices with other prices going across the globe. Some analysts believe that there seems to be a pattern in the residential prices across the globe, others argue about the decoupling of these prices, mentioning that prime residential global location seems to follow a similar pattern. This makes it easier to predict some market patterns and analyse what is to come in these markets. Additionally, the fact that rich folks who prefer to live in prime locations might have their residential places in various main cities. This tendency also paves the way for a superficial convergence in the market that assists in understanding the housing system (Hay, 2013).
Bracke (2014) conducted a quantitative study on the residential property market of central London and concluded some worth sharing points from that analysis. The main goal of the analysis was to compare the house price (purchase and rental) for over the past few years and on that basis, several ratios were calculated which provided an overview of how the spending patterns of families living in the locality might be influenced and designed. The article also provided growth expectations of the residential market of the neighbourhood which paved the way for further analysis while making it easier to spot risks in the industry on the whole (Bracke, 2014).
Something worth noticing in several studies is the need for more stability and sustainable resources associated with these properties. This idea provided in the literature makes sense because the prices of a residential property is not a one-time cost. Conversely, it requires a constant flow of funds to be able to maintain the place and handle other expenses associated with the place. In that case, general housing features should also cover factors like these which allow getting more long-term rather than one-time information about the house. In the context of married couples, this information will be incredibly helpful because they are focusing on having an inflow and outflow of income which is designed and planned well ahead (Yee, Connie, Wendy, & Diaswati, 2016).
Another aspect that is considered in the literature and needs more attention is the sale and resale of residential property in the UK and any property in general. There is always a proper way of evaluating the place and families including married couples are more in a position to get involved in these valuation processes which might make the process more understandable. Hence, an idea that the literature still needs to add more to is the purchase and resale of residential property in London by married couples. This will not only provide a short-term analysis but can give a wider and high-level perspective as well (Mackmin, 2013).
When it comes to property valuation, another factor that enters the picture is the time frame for that evaluation. For instance, not just the fact that a property is to be resold to another person but the time duration between a sale and a resale is to be considered because it shows how much liquid the market is and what income changes the economy is going through if there is a lot of residential house purchases in London. It has also been mentioned that considering the time frame factors into the discussion, house prices show a different pattern compared to other prices which makes it easier to spot the difference as well (Phillpe, Pinchbeck, & Wyatt, 2014).
When married couples make a decision to buy a residential place in the UK, house prices are not the only variable that is used to determine the value of the property. This is because there are several qualitative variables that might affect the purchase decision and considering the prices only can lead to narrow decisions. House prices also have wealth affect and couples in London have to see how the price trends in the city will change because even if they end up buying a place in the city, future market prices might make it a challenge for them to live there and they might eventually have to move (Disney & Gathergood, 2016).
Montoya, Junger, & Ongena (2016) provided a unique idea that was connected to the residential property in the UK and their purchase by the citizens. This is also a socio-economic idea that people especially married couples try to look for places that are affordable and safe at the same time. In that scenario when it is common for the majority of a specific portion of the population to look for a specific type of property, this is going to drive some demand in the sector which will in turn push pressure on the prices (Montoya, Junger, & Ongena, 2016).
Along with that idea that safety conditions are considered while buying a house which might drive the prices in the residential property market, another factor that needs to be considered is the long-term transportation cost associated with the place. The reason these costs are included in the analysis is that they are most likely on a daily basis and also because these factors are supposed to translate into the purchase decisions. This idea is also connected and provides a similar concept discussed in other literature that a house is not a one-time purchase and requires constant maintenance. Due to that, considering transport cost is one of the most crucial factors that should be under observation (Dziauddin, Powe, & Alvandes, 2015).
The work by Chiaradia, Hillier, Schwander, & Barnes (2013) seemed to complement the idea provided above because it discussed the way there is a divide created between the urban and other areas in London and how the valuation is done on that basis. This is so because while the property prices put an effect on income of married couples, their buying decisions also get manipulated which can push forward a whole new cycle of market and property valuation. The idea provided in the study was able to lead to the development of sub-categories in the sector and make it more rational to say that the framework of residential properties is constructed in a way that there is a local and spatial which has material and socioeconomic impacts (Chiaradia, Hillier, Schwander, & Barnes, 2013).
Building on this idea provided in the literature, there is another dimension that was built up around the same concept. In terms of how the transport cost to and from the residential place is to be maintained on a daily basis, the concept of developing a housing scheme for families in a neighbourhood which is closer to a rail transit is a good way to reduce the pressure on the prices. With reduced commuting costs, the property is going to be more affordable especially for families and married couples that are looking for better and more affordable options. At the same time, it also saves the hassle to take a lot of time in deciding which place might be a better option (Bowes & Ihlanfeldt, 2001).
Young & Wilmott (2013) argued that there is a lot of impression of the society when it comes to buying a house in London and the UK. Especially east London has buying trends that are constant for over the past several years. Households consider the surroundings while buying a house and also because east London is preferred by people with familial tendencies, prices are also volatile in the neighbourhood. In that situation, married couples take several factors into consideration while deciding to move to east London.
All in all, several studies provide insights on how the real estate market of London operates and how the residential property prices are subject to market volatility. There is still a gap in the literature in terms of how significant the effect of real estate prices is on married couples who are either moving to London or are planning to buy a permanent residential place in the city.
As it has been thoroughly mentioned in the literature review section, there were several instances when there was a study that covered the overall trend of property prices in London and the UK as well. Most of the studies provided unique and worth sharing perspective to the idea of residential property in the UK and its connection with the income patterns of married couples. Apart from the huge research pool, the idea that covers the factors that influence the income of married couples in London is something very specific and does have a strong backup evidence from the market which proves the married couples’ incomes are affected by the residential property prices in London (Bracke, 2014).
The aim of the study was to comprehend how the income patterns and property purchase decisions of married couples depend on the real estate prices in London. This will not only allow analysing the role of the real estate market in the income allocation of the married couple but will also assist in developing a stronger understanding of the connection between the consumer market in the real estate sector and the consumer income patterns across the city and the country as well.
To address the aim and objectives of the study, a major portion of the study was dividing the samples into two groups. As mentioned earlier, the plan was to make two groups; one is the ten married couples who are customers in the real estate market while the other sample will consist of five people who are experts in London and UK’s property. This division in the sample size was supposed to help in making the study as granular and diverse as possible. Also, the classification of the samples was necessary to avoid monotony in the sample and add results that provide more perspective and clarity (Edmonds & Kennedy, 2012).
In terms of the type and philosophy of the research, the focus was to include both primary and secondary sources of data to make the sample and technique more up to date and ensure that no perspective is missed (Liamputtong, 2013). The study started with the analysis of secondary data analysis. Most of the relevant studies were included in the literature review section to see where the market patterns are sitting right now. This secondary data information also helped in the research in a way that if there is an irrational market decision, it is possible to assume that this specific decision is not healthy for the market.
Secondary research of articles and other authentic sources assisted in making a general assumption about the market conditions in the real estate industry and the income patterns of married couples. For instance, the idea that other long-term costs should be associated with the house and then a decision should be made is a very useful idea and changes the connection between the two. It was also realised that there is a global convergence when it comes to the house prices in the prime locations across the world. This was a lead for further research plans and made the understanding of the market more specific. Secondary research is important before conducting the primary research because it provides a strong base for the data that is to be collected from the market in a raw way (Kothari, 2004).
After conducting the research on the topic from primary sources, the study was turned towards the primary research which was initially designed and improved for the study. The study had two main samples for the primary data collection. The first sample consisted of a group of 10 married couples who have been living in London since last 2-3 years. The reason this limit was put on the time span was not just to make the study more specific rather than a general sample. Also, the idea was to stay within a specific period so that the analysis is latest and because if there is a huge time span is applied, a whole lot of assumptions were supposed to be included.
The first set of primary data collection started with the married couples. As the idea was to keep the human interaction as less intrusive as possible, separate sessions were conducted for the interviewee couples. These sample couples were selected on the basis of snowball sampling and helped gather a long list of couples that could be reached out to. Firstly, an initial email was sent to the couples to ask if they were willing to volunteer. After that, when the consent was collected from the married couples, that data was gathered and pulled aside so it could be connected to the other types of information.
The second stage of collecting primary level data was to work with the other group that consisted of people who were experts on the residential property section. The reason behind adding this group to the discussion and analysis was to expand the amount of knowledge that was already collected from other sources. For this group as well, email was sent to the individual experts and they were asked to set up a call so a small conversation could be initiated. The method used to select these sets of a sample was also snowball sampling. This approach was adopted in the study because snowball sampling is not only convenient but is also a good way to keep the information and the patterns consolidated (Bryman & Bell, 2015).
For the married couples, they were all residing in London and the good thing was that they were spread across the city. This provided an edge in the study because the sample was representing a wide population in the city and the UK as well. This really helped understand how the situation can vary depending on the individual's members or the couple as well. For the experts, a sample of people who work in the residential property industry field was selected. This sample was also selected on the basis of snowball sampling to expedite the process of coming up with a sample for the study.
The one-on-one interviews conducted with both sample groups and each individual member were designed in an open-ended and candid way so that they can deliver what is expected from them for the research. It took some time to collect the primary from all of these samples because individual interviews were conducted after the volunteers were provided with the necessary information about the study so that they do not feel pressurised or are being pushed to the limits. During the entire process of data collection, all the observations were being loaded in the data file so that everything is consolidated in a well-designed file.
After the data was collected in a gradual pattern, it was analysed on the basis of the techniques used for the analysis of primary data. The results of the study were not only expected to lead to a conclusion regarding the research question but were also thought to be useful for in the real estate industry of London and the economy of the UK. Descriptive statistics were calculated for the data gathered from the market. The results were in a position to represent the market as a whole and also the segments of the market as well. This was expected to make it easier to provide some recommendations for the market so that married couples in London are able to find and buy residential property.
In terms of ethical consideration, as the study was engaging with real people in the research, it was important to make sure that no ethical aspects of research were overlooked. For that, all of the members included in the study were provided with all the necessary information about the research and what they were getting into. Also, the couples and the experts were provided with the surety that their information will stay anonymous and will only be used for the purpose of the study being conducted. This trust building provided a significant level of assistance in terms of how people decided to respond to the research (Kvale & Brinkmann, 2009).
After collecting the primary data and conducting statistical and descriptive analysis on it, the next step was to make the connection between what had already been selected and what is being left in descriptive areas for the sake of refined and more generalised research. For that, a detailed analysis was done for the data to see the market patterns and explore how these patterns are associated with the thoughts of people living in London. This was a crucial step because, at this point, the qualitative and descriptive information was coming to converge to help develop a rational and well-structure theory behind the market conditions in London's residential industry for married couples.
Question # 1: During of Residence in London
– The research participants expressed a variation of responses for the first question. Of the ten married couples that were interviewed for the primary data collection, five of the respondents resided in London for more than ten years. Of the remaining five couples, two couples have been residing in London for five years, while the other three were in London for less than three years. Of the couples who have been in London for less than three years, they have been moving in and out of London due to their job relocations. Couple A expressed ‘the rental cost at London prohibits staying in London for long periods of time during periods of unemployment. I work as a consultant and during the times four years ago when I did not have an assignment, we had to relocate to Lancaster to avoid the high rental cost. My wife's job didn't pay alone well enough to pay for the rental cost'
The varied distribution of the sample implies the research samples provide an insight into a broad cross-section of London residents. Also, the responses of the couples who have been in London for more than ten years provided insights about the longitudinal movement in the rental costs.
Question # 2: Status of the Ownership of the Residence
– The participants of the study predominantly tend to own the property. Eight of the couples interviewed for the research expressed that they own the property. All the five couples who have been residing in the London for almost ten years were the owners of the residential property. The reason expressed by Couple C was ‘Once you know you have to stay in London for a long period of time, it only makes sense to own the property. Otherwise, it feels painful that a large proportion of your earnings are being drained down by the monthly rent. Also, there is no surety that the owner of the property won’t raise the rent at the end of the year. A contract is only for a year and at the end of the contractual term, the owners generally increase the rent’
Question # 3: Period of the Ownership of the Property
– Of the eight couples who owned the property, five of them had been owning the property for more than seven years. The remaining had assumed ownership of their residence only within last three years. Two of the couples that owned the property for more than five years, had changed their residence during the last five years. Couple B had chosen to move to a location closer to their workplace. They expressed ‘My previous residence was in East London at Lewisham. However, I changed my job and new workplace was in North London at Enfield. We couldn’t find a suitable residence at Enfield but we kept searching. Three months later we found an affordable property at Haringey and we were quite happy to settle at that location. The new place is more spacious and there are several amenities within walking distance’
Question # 4: Change in the Price of the Home
– All participants of the interview other than one couple expressed that the price of their house has increased since the time of the ownership. Three couples were quite contented with the increase in the price and mentioned owning their home was the best investment decision they made. They also pointed out the state of London’s economy. The unemployment rate in the city has decreased sharply during the last eight years since the recession of that had struck the economy in the year 2009. They also stated the average wage rate in London has increased sharply during the last three years. This is the reason this city has exhibited an influx of the residents from other cities. This influx of residents into the city is the major contributor to the growth in the price of their residence.
Couple F was remorseful that they had chosen an inadequate location to buy their property. The area in which they bought the property has deteriorated in terms of the housing prices because of the poor amenities that are present in the area. Also, an increase in the crime rate has driven away people from choosing to own a house in the region. However, they are hopeful that the housing price will improve by the end of the year and they plan to move to a better location.
Question # 5: Intention to buy a House in London
– This question was directed at both the groups that owned their residence and those who didn't. The two couples who are residing in rented home have expressed that they are planning to buy a home in London. Couple F stated ‘We have been saving up for three years to buy a home. In fact, we would consider buying our current home if the owner agrees. This is the place we have been paying the rent for the last two years and we love living here. Our credit scores have been too low for us to afford a decent housing. But we have been repaying our debts and all the payments for this home have been on time. Hopefully, we will be able to quality for a housing loan by the end of this year'.
Question # 6: The impact of Housing Prices on the House Purchase Decision
– All interview participants were of the opinion that the price of the house is the single most important determinant of the purchase decision. Couple E remarked ‘If the price of our current rented house decrease by even fifteen percent, we would immediately buy it. What is there not to love about our current home other than the prohibitively high price? It is spacious and our heating bills remain quite low because it contains some excellent insulation. It is only the price that is preventing up from owning this place'.
Question # 7: Difficulty of Owning a House for an Average-income Family in London
– There was a convergence of responses on this question. All participants of the interview were of the opinion that owning a home is very difficult for an average income family. Particularly with the recent increase in the housing prices throughout London, the participants felt that it is getting harder for average income households to own a property in the city. Nevertheless, all respondents agreed that the rise in the housing market is driven by an improvement in the economy and there is little government can do to deter the rise in the prices. This situation is also beneficial for existing home owners and makes it possible for them to get a better price if they chose to change their property.
Question # 1: Observation on the prices of the Residential Properties in London during Last Five Years
– Real estate experts have shared key insights into the pricing trends of the London housing market. During the last five years’ prices of residential properties in London have increased sharply. All participants have expressed an upward trend in the prices of the properties and have linked it with the above-average performance of the economy. Respondent 2 – who is a property broker – stated ‘This increase in the property prices is based on solid economic fundamentals rather than speculation. The average price of London homes and apartments is touching around 10,500 Pounds per square meter. Certain areas like Chelsea and Kensington districts have shown the greatest growth in the property price’
Respondent 6 had a much deeper observation to share. According to him, the prices of homes have increased during the last five years; however, the pace of the growth has slowed down during the last year. She stated ‘I have one barometer to measure the health of the housing market. It is the mortgage rate. When the mortgage rate is high, it means the housing market is performing well. And I must say that the London housing market experienced its slowest growth in more than four years between May and July. I would say an average house price would have risen by 2% only during last year while this figure would have been 3-4% for four years prior to that. In fact, in the year 2015 prices in the London were reported to have had increased by more than 8% in one year’
Other interview respondents also expressed that the increase is taking place but it has slowed down in the last two years. The link with the overall economy has been described by the respondents as the decline in the purchasing power of households with inflation rising faster than wages. Improving the job market has not helped boost wage growth and this tightening of purchasing power has contributed to the decrease in demand.
Question # 2: Degree of the Impact of the Residential Property Prices on the Purchase Decision of the Buyers
– All real estate experts expressed their agreement with the statement that real estate demand is strongly determined by the price levels. According to Respondent 1: ‘The price of the real estate is all that there is to it. It is a natural behaviour of an individual. When the house is expensive, their inclination to buy it reduces significantly. This is understandable because housing purchase is such a big decision of a household. A person has to spend their lifetime of savings to acquire a property and take up the huge loan. They would be willing to buy a house if there is an even slight decrease in the price'
. One interview participant shared an interesting insight. According to him, this relationship reverses for the most expensive areas in London. For example, a property at Frognal Way attracted a number of interested buyers when its price rose. However, he admitted that this behaviour is an exception rather than the rule.
Question # 3: Affordability of Residential Properties in London
– The question about the affordability of the houses in London garnered mixed responses. Of the ten respondents, eight expressed houses in London have become unaffordable for middle-income group. Respondent 2 said ‘My nephew is a young surgeon. He has no money to buy a house in London. It shows how the housing prices are affecting the middle group in the city. The average price of a property in London can be put around 500,000 pounds. Now you tell me how many people can afford to buy a property. In this line of business (real estate agency) I see young Londoners everyday abandon their dreams of buying a home and have to turn to rental. But here again, it is the crisis, with rents that never cease to a flame'
. On the other hand, the two respondents who mentioned houses are still affordable said the financing options have improved during the last ten years. Thus, they considered that the presence of financing options has made it easier to acquire a property.
Question # 4: Degree of Economic Activity in the Housing Market
– The London housing market is generation enough economic activity according to the interview participants. However, the research participants have been cautious about the economic turmoil that is taking place in the country. The link of the housing market with the overall economic activity has been reiterated by the real estate experts at this question. In their opinion, the fall of the pound observed since the vote of Brexit has accelerated. This makes London real estate less attractive. The trend in the rise of the home prices had already begun to decline early this year. This occurred partly because of the political context. Investors in the housing market are partially cautious due to the political climate, uncertainty about the general elections, and the reconfiguration of the relationship with the European Union. Also, the market has also been hit hard by the new standards of mortgage lending. The eligibility criteria were tightened in 2014, leading mechanically to a drop in demand.
Question # 5: Percentage of Income that Needs to be Dedicated to buy a House in London
– Answers to this question varied greatly. A majority of the interview participants mentioned allocation of twenty percent of the household income per month would classify as adequate. But they were quick to mention that this saving must be made for at least eight to ten year before the housing purchase can take place. This figure for the allocation of the household savings was even quoted at 40% by one housing expert, while others were of the opinion that a disciplined 10% of the income would be sufficient to meet the goal of buying a house.
Question # 6: Predictions about the London Housing Market for the Next Five Years
– The research participants are not very optimistic about the future of the London housing market. They have expressed concern that the London real estate market is set to have a serious setback. They fear a contraction in housing prices in London by the end of current year. The reason attributed by the interview respondents is the Brexit controversy. Since London is the economic hub of the country, it is far more affected than the rest of the country which is likely to undergo a strong slowdown. They are also unsure when the prices are expected to rise again.
Question # 7: Efficiency of London’s Housing Market
– In the opinion the housing experts, the housing market is not as efficient as generally perceived. Despite the emergence of the internet and the presence of real estate agents, there is an emotional component to this market. The source of the inefficiency is the sentiments of the buyers and the sellers. Respondent 6 stated, ‘There is an emotional component to the valuation of the house at the time of the selling. I always tell my client, not to overestimate the price of their home. Too much valuation of your property reduces the number of potential buyers and your property will be longer and difficult to sell. Overvaluation is the biggest cause of failure of sales by owners. Remember that the local property market dictates prices, not what you think is its value. One of the best ways to properly evaluate your property for sale is to find out at what price similar properties in your neighbourhood have sold. Look at the ads in your local newspaper. Generally, if you set the price of your property from 5 to 7 percent above the market price, you are likely to end up with an offer close to the true value of your property’.
This section carries out a comparison and contrast between findings of findings of literature review and primary data.
4.2.1 The role of London’s Residential Property in the UK’s Economy
The strong relation between London’s housing market and UK’s economy has been confirmed from both secondary and primary data analyses. The responses from the interviewers and findings of the literature review converge on the strong link between the real estate market and the state of the economy. The dynamism of real estate prices in London tends to increase private consumption and residential construction. The industry helps to offset low activity and weaknesses existing in other sectors (Mason & Harrison, 2015). It can be deduced that the entire institutional framework that comprises both housing and mortgage markets is closely linked with the overall economic efficiency and real incomes in the city of London. The efficiency in the overall economy also increases the ability of the changes in the prices and demand of housing to respond efficiently to the changing market conditions. The degree of efficiency within the financial institutions in the housing markets of London also has a high degree of influence on the scale of the entire economy (Curtis & Pentecost, 2015). This is the reason both primary and secondary research has confirmed the presence of a direct link between the real estate and overall consumption in the economy (Curtis & Pentecost, 2015).
4.2.2 The impact of Residential Property in London on the British Economic System
The link between the residential property prices in London and the British economic system is also found to be similar from both secondary data analysis and interview responses. There are significant differences in the pattern of residential construction in London and the economic cycle stage in London (Baker, Bentley, Lester, & Beer, 2016). There are also significant differences in the institutional characteristics of London’s housing market. The developments in the mortgage markets is also a strong influencer on the interdependence of the relationship between the housing market and the performance of the business cycle (Baker, Bentley, Lester, & Beer, 2016). There are numerous characteristics of the mortgage markets. One factor that stands out is the degree of completeness of the financing cover provided by this market. This factor serves to reinforce the wealth effect on the consumption of goods and services (Badarinza & Ramadorai, 2016). Mortgage lending has also become easier that has contributed to the positive trend in both the economy and the housing market. Many former borrowers were able to renegotiate or redeem their mortgage on much more favourable terms. Some are even at their second or even third redemption at a better rate over the past few years. Indeed, for those who bought real estate on credit in 2011 or 2012 with high borrowing rates close have been several opportunities to renegotiate these old contracts in recent years (Baker, Bentley, Lester, & Beer, 2016). The government is also intervening in the housing market by setting favourable interest rates for the borrowers. The reason for the government intervention is the close link between the economy and the real estate market. A rise in prices in the real estate sector is not without effects on the economy (Baker, Bentley, Lester, & Beer, 2016). On the flip side, low housing prices also favour urbanization and, as a result, there is a constraint on the amenities that are provided by the government to a city (Baker, Bentley, Lester, & Beer, 2016). Financially, the losses are difficult to assess, but it seems that the cost is high and that this scourge is irreversible. Expansions, redevelopment of roads and an investment in other utilities also need to be made. If the degree of seriousness has not yet been established with certainty, it can be suspected that in the large urban areas, the real estate sector could be blamed by the eco-citizens most aware of the problem (Baker, Bentley, Lester, & Beer, 2016).
4.2.3 The impact of the Property Prices in London on the Purchase Decisions of Married Couples
The impact of the property prices on the purchase decision of married couples has been found to be significant both from the secondary data analysis and the interviews from the participants. The price of a property is the single most important determinant in the purchase decision. When the price of a residential estate decreases even by a small percentage then the inclination of the buyers to acquire the property immediately increases (Bracke, 2014). Thus, the overall trend in the prices of the properties in London has been found to be a strong indicator of the degree of activity in the housing market. The real estate market has for a few years been heavily dependent on changes in credit rates (Badarinza & Ramadorai, 2016). A sharp rise slows sales and draws prices down, while a sharp decline tends to allow more transactions and influence prices upward. Rates are not the only ones to influence prices, many other external parameters have an impact on housing prices, in addition to the qualities or intrinsic defects of it (Badarinza & Ramadorai, 2016). This relationship between the price and the demand for the property in confirmed by the recent increase in the demand for the residential property. In recent years, the good performance of the UK economy leading to low unemployment and the real wage increase (Badarinza & Ramadorai, 2016). This coupled with a comparatively low increase in the prices of the property has led to the increase in the demand for the real estate. There are, of course, other factors affecting the demand for the real estate: for instance, fears about the fall in the currency exchange rate, low mortgage rates, inflows of capital, etc. (Badarinza & Ramadorai, 2016). However, the link between the low prices and high demand for the property is confirmed.
Four important conclusions are drawn from the evaluation of primary and secondary data in this research. Firstly, it is concluded that the role of London's residential property in the UK's economy is highly important. A close link has been found between the rise and fall in the housing market and the growth in the economy. It is found that there are interactions between regional planning policy, the housing market and average household income. This shows that policies related to the housing growth can be implemented in order to encourage economic growth in different regions – particularly in London. Economic planning is used as a policy tool for economic development. The high level of housing prices in the south of the London has transformed the housing market in this area into a more attractive area compared to other regions. The expensive housing areas offer a better return on investment for households that can invest in them. When the supply of the housing projects is limited, then there is a growth of investment in the particular category within the market. This also leads to an improvement in the allocation of the resources towards the acquisition of the property. Hence, it is concluded that the purchase of residential property in London affects the British economic system. This link has been confirmed through both primary and secondary data analyses.
The study has also concluded that the property prices in London highly impact the property purchase decisions of married couples. It is possible to deduce a link between house prices and the property demand which may explain the variations between regions. The rate of creation could be higher in the south of the United Kingdom; as higher housing prices would increase the guarantees offered. But it is not the only reason. In fact, this part of the country also includes the highest skill levels, which significantly influence the number of houses sold in a region. The housing market can lead to an increase in the demand for the residential property. Although the housing prices have an impact on the demand for the property, highly skilled people are relatively mobile and less discouraged by high housing costs (where they can best utilize their skills). Therefore, it is concluded that there is an inverse relationship between the prices of the houses and their demand; this relationship does not hold true in all cases. There are certain instances in which the demand for the property increases even though there is an increase in the price of the residence.
It is recommended that the sharp rise in property prices in London and rents make it difficult to find accommodation for a private individual. Forecasts for real estate in 2017 and for years to come are bleak. The analyses of the decline in real estate and the comparison with foreign real estate markets.
The presence of these elements enables the management of the real estate projects according to the market prices of the residential property. Housing absorbs more than 25% of the budget. Whether for a rental or for a real estate purchase, it is therefore important to ask the right questions to make the right choices. To know everything before buying, renting or selling an apartment or a house. The finance of real estate project you can study whether you are eligible for assisted loans or tax credits (such as the zero-rate loan) or how to get the best mortgage rate. Once the budget is set, you can take a look at the real estate listings, check real estate questions and discover practical information: all tips for real estate.
The exceptional dynamism of the real estate market has been made possible owing to historically low interest rates, but also to the drop in the price of housing throughout London. However, the price barometer followed the trend of banking scales at the end of 2016 and prices rose. The other agglomerations have followed this trend, gradually degrading the purchasing power of households wishing to invest in large cities. The increase in tariffs, however, did not have a notable effect on the demand for real estate financing in London, due to the still very attractive interest rates and the measures put in place by the state to help first-time buyers become owners.
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- How long have you been living in London?
- Do you have a rented house or do you own it?
- If you own the house, when did you buy it?
- Compared to the time when you bought this house, do you think the price of your house has increased?
- Would you consider buying a new house anytime soon in London? Yes/No
- To what extent would higher house prices affect your house purchase decisions?
(a). A lot(b). To some extent(c). Not at all
- Do you feel like buying a house in London is hard for a person with average income?
- How do you see the prices of residential properties London over the past five years?
- To what extent do you think residential property prices affect the purchase decisions of buyers?
- Are the houses in London affordable?
- Has the housing market been generating enough economic activity lately?
- What percentage of his income an average person would have to dedicate to buy a house in London?
- Where do you see London’s residential property prices going in the next 5 years?
- Does London’s residential property sector represent an efficient market? Yes/No