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Demand for housing in the UK can be quite volatile. These are some of the main factors which influence the demand for buying houses in the UK.

Interest Rates

The majority of UK homeowners still prefer to take out variable mortgage rates (unlike the continent where fixed rate mortgage deals are more common). Therefore any change in the base rate by the Bank of England will immediately affect the mortgage interest payments. This is a major factor in determining the affordability of housing. Mortgage payments take a high % of people’s personal disposable income. (average is 25%, but, for some homeowners it is higher.) If you have a £150,000 mortgage a 0.5% change in base rates will change your monthly payments by about £60 a month. Therefore, even small changes in interest rates can deter people from buying.

Population.

A rising population increases demand for housing, either renting or buying. The UK’s population has been steadily increasing since the second world war and is forecast to keep rising - 65 million by 2020. Note, the population is rising faster than the number of new houses being built.

Households.

The demand for housing doesn’t just depend on the population but also the average size of a household. Certain social and demographic factors are causing a rise in the number of households (faster than the population increase). These demographic changes include issues such as:
age of people leaving home

• increased life expectancy, leading to more single old people
• Divorce rates, - increasing number of single parent families.

Renting Sector

The only real alternative to buying a house is renting a house. If the cost of renting rises, it increases the relative attractiveness of buying

Mortgage availability.

The willingness of banks to lend mortgage finance can vary depending on the strength of the interbank lending sector. The Credit crisis of 2008, has seen a sharp rise in the cost of inter bank lending and a fall in availability of mortgage finance. Many mortgage products have been withdrawn, making it more difficult for would be homeowners to get on the property ladder.

• For example, mortgages such as 125% and 100% mortgages have been withdrawn. Banks are increasingly demanding a higher deposit before lending mortgages.