Terms in UK Housing Market

Nominal House Prices:

• This is the actual monetary value of the house

 Real House Price:

• This is the monetary value minus inflation

Mortgage repayments:

• To buy a house people have to borrow money. Therefore they take out a mortgage, this loan is then paid back in monthly mortgage repayments

Negative Equity:

• This occurs when there is a fall in the real value of the house. It means that if somebody wanted to sell their house they would get less for it in real terms than the original buying price.

Capital gains:

• This occurs when people have an increase in the value of their assets such as your house. This leads to the “wealth effect”

Wealth Effect:

• The most common form of peoples wealth is their house. Therefore if house prices increase people feel wealthier and therefore spend more causing an increase AD.

Stamp duty:

• This is a tax that is paid on buying a new house. The more expensive it is the more tax that is paid

Equity Withdrawal:

• If house prices increase owners can take advantage of this by re-mortgaging their house giving people extra disposable income. For example if you bought a house for £100,000 you would have a mortgage for that amount. If the value of the house increased to £130,000 the bank will be willing to lend you an extra £30,000

Boom and Bust:

• This involves rapid changes in the economy, during a boom period house prices rise rapidly helping the economy to grow fast. However this causes inflation. If interest rates then rise then the economy will slow down causing a fall in house prices.
  (This occurred in the late 1980s and early 1990s)

Recession:

• This occurs when there is a fall in economic growth for 2 consecutive quarters