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Supply and Demand and its impact on property prices

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The principles of supply and demand are fundamental to the functioning of the property market, and they play a significant role in determining property prices. The law of supply and demand states that the price of a good or service will be determined by the interaction of the quantity of that good or service that is available (supply) and the quantity of that good or service that is desired (demand).

 

In the UK, current economic forces are impacting the property market in various ways. For example, the COVID-19 pandemic has led to a decrease in the number of properties available for sale or rent, as many people have put their plans to move on hold. This has led to a decrease in the supply of properties, which in turn has led to an increase in property prices. Additionally, the pandemic has also led to an increase in demand for properties as people have reevaluated their living situations and are looking for more spacious or rural properties. This has further fuelled the increase in property prices.

 

Another example of how current economic forces are impacting the property market in the UK is the effect of Brexit. The uncertainty surrounding the UK's exit from the European Union has led to a decrease in the number of foreign buyers, which has led to a decrease in demand for properties. This has led to a decrease in property prices, particularly in London and other areas that are popular with foreign buyers.

 

Mortgage affordability is another important factor that can influence property prices. In the UK, the Bank of England has kept interest rates at a historically low level to support the economy during the pandemic. This has made it cheaper for people to borrow money to purchase a property, which has led to an increase in demand for properties and a corresponding increase in property prices. However, the current economic uncertainty is making lenders more cautious and the credit score and income of the buyers play a more significant role in the mortgage approval process, which can make it harder for some buyers to afford a property.

 

In summary, the principles of supply and demand, as well as mortgage affordability, are major factors that influence property prices in the UK. Current economic forces such as the COVID-19 pandemic and Brexit have led to changes in the supply and demand for properties, which in turn has led to changes in property prices. Additionally, mortgage affordability, which is determined by interest rates, income, credit score, and LTV, also plays a significant role in determining property prices. Investors and those in the property market should stay informed of these economic forces and how they may affect the market in order to make more informed decisions.

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