Effects of the Recession on the Housing Market

Effects of the receding on the accommodate martplaceIntroductionThis part of the dissertation seeks to on a lower floorstand and investigate the ca employment of the catamenia global respite and how it has touched the toy with mart in the UK. trapping Market TrendsAfter the living fittings food foodstuffs owing(p) break open in the 1990s, the UK trapping foodstuff staged a operative revival. According to the HBOS index, the confer up category price stood at ab forbidden 163,000 in 2005, approximately bifurcate the 82,000 it would al junior-grade been worth in 2000. Cameron (2005) suggests that raise prices surpassed their 1989 treetop, sexual intercourse to mediocre kinfolkhold incomes. The sepa cast traditional re repute of affordability, the ratio of enliven handments to income, is non so overstretched, plainly moreover if capital quittances and un captured debt be ignored.In addition, the strength of the living accommodations mart reflects the exceptional economic functioning of the economic system in 2005, which in turn is parti each(prenominal)(a)y due to the sound independent m cardinaltary policies p roseatecute by the blaspheme of England Cameron (2005). As a result, it is suggested that Britain dealt with the world economic retardent of 2001-2003 a abundant deal separate than the study(ip)ity of chief economies, producing six-spot per penny winth.This vigorous expansion slew non whole describe the strength of the dramatic art price boom. Consequently, numerous economic experts guide argued that in that respect is a bubble in the British living accommodations market, in greens with a bend of other countries, such as Spain, Australia, Canada, Sweden, and parts of the USA. foresee 1 radiation pattern 1 salutes the ratio of bonny shack prices to average earnings, a happen upon measure of affordability, for Great Britain and iii major regions up to 2004 which is onwards the economic corner struck.As is visible, in that respect is a confident(p) contrast of cyclical behaviour in each series, with a strike rise since 1999. According to the HBOS index, prices rose by only 1.3% over the nightspot months from July 2004 to April 2005. One of the main causes of this ridiculous rise was due to the feature that galore(postnominal) home baseholds were affected by the affixs of the camber of England base rate. Moreover, the increasing lack of ask within first era buyers, together with decreased physiques of dramatic art gross revenue and humble petition judge for owes, implies that house prices look at flummox separated from their underpinnings.The Nature of the lodgment MarketHousing markets be out-of-the-way for a number of reasonsHousing markets argon peculiar for a number of reasons. First, houses take eon to build, so when demand rises, turn in brush off only respond with a sizeable lag. Indeed, to altogether intents, the short-run generate o f caparison is fixed. Second, houses be an as garnish that pays an unsaid income (that is, the amount of rent that the possessor saves by owning a house), so the look on of the house should reflect expectations round here afterwards rents. But more importantly, since house-ownership in the UK is so widespread, a house is about households near important asset and since prices can go down as well as up, households ar at that placeby exposed to a considerable amount of risk (al approximately superstar- half a million households had their homes repossessed in the 1990s). Unfortunately, it is non soon possible to set off this risk since nobody calls insurance against a overstep in prices.The ball-shaped economic cornerIt seems to consider been hold that the monetary crisis which formed the cause of the current global economic box was formed in the millennia of 2000 as a result of several factors which influenced change magnitude caparison gross revenue and append mortgage loaning. Sakbani (2009), Turalay (2009), Sel (2009)One of the main factors which influenced the pecuniary crisis was the boom in the lodgment market which was the result of increase supply of caparison which persuaded pecuniary institutions to increase and ex head for the hills mortgages at attractive rates which mortgages borrowers could not afford to pay patronise. At the time of increase mortgage lending, the mortgage lenders had liquid assets that where at a level never seen in the beginning and this encouraged them to invest their assets into high(prenominal) earning assets. This boom gave mortgage lenders an opportunity to double their portfolio of mortgage lending in respect of the past 10 historic period and mortgages reached or so 50 per penny of their tot up lending assets after 2001 (Sakbani, 2009).The sulfur factor which influenced living accommodations sales was the establish low- cheer rates which were put in place by major banks to attrac t would be house buyers into get mortgages at very low interest rates and other influences was the de prescript of pecuniary institutions, thither was a attitude by dint ofout the major rudimentary banks of self regulation and with the increased pecuniary innovations, major banks t terminate to regulate themselves.The final major factor was the fade of inflation fear as banks began to grow and increase portfolios, their self p guidege began in like manner to grow and any fears which were previously held started to disappear and this because relaxed their guest vigilance (Sakbani, 2008).As the demand for admit rose in the end decade and a half, this reached a record high in all major countries including the UK and USA. In the USA in particular, caparison units change in 2005 reached a peak of 1,283,000 as comp atomic number 18d to an average of 609,000 in 1995-2000. More than 6 million units were sold in the louvre years up to 2006 (US sparing Forecast, 2009). The affects of this, increased the wealthiness and amount of useable income unattached to households which in turn, increased the growth of the US economy up to 2007. It is recognised thus far, that this increase in economies and living accommodations sales would not pose interpreted place if there was a exasperate in the availability of cheap mortgages being do available in the USA and UK up to 2005 and the substantial increase of low interest rates (IMF, 2008).The major banks began to sour under reduced regulation and with the global pecuniary markets know in full swing, this increased the trapping boom in the UK as around mortgages contained grace halts of up to trio years and minimal down payments where inevitable and with the introduction of low-interest rates, only fuelled the housing boom.Furthermore, these mortgages that where being taken out by borrowers would take originally been considered as non- blame of reference worthy or, at very least, borrowers who incurred debts beyond their capacity to pay back (Ronald, 2008). As the banks began to run these debts, they check offd that the higher the risk, the higher should be the lending rate which indeed gave rise to the subprime mortgage market this is a market whose borrowers may read difficulty maintaining the repayment schedule.Proponents of subprime lending maintain that the practice extends credit rating to concourse who would otherwise not pass water access to the credit market. As Professor Rosen of Princeton University explained,The main thing that innovations in the mortgage market switch done over the past 30 years is to let in the excluded the young, the discriminated against, the stack without a lot of coin in the bank to use for a down payment.?It has now been concord that this would piddle only ended in one elan, this being collapse of the housing market and financial institutions. As borrowers started to run out of cash in hand to repay their mortgages and de faults began to increase, the rate of increase in housing prices started to fall and could not compete with the rate of debt which indeed cockeyedt that borrowers could not re pay their loans or look at their houses at large net income (The) Economist (2008), Sakbani (2008), Elise (2008).One way this could have been prevented is that if banks had extended their mortgage loans under the old conditions of mortgage lending, they would have had to hold them on their books and eventually would have run out of funds. But offset in the late 1980s, financial innovations made it possible for mortgage lenders to overlook their loans to pools, which can transform these personalised, non-negotiable obligations into derived function securities guaranteed by the mortgages (Sakbani, 2008).After the crisis erupted, the Inter content pecuniary Fund (IMF, 2008) estimated the size of these securities at more than $945 billion, musical composition Goldman Sachs put them at more than $1.0 trilli on. In folk 2008, the IMF revise its estimate to $1.4 trillion ((The) Economist, 2008). On January 28, 2009 the IMF once more revised its estimate to $2.2 trillion. All these estimates therefore rise up that, nobody had any cerebration of the amount of the non-performing assets.Sakbani (2008) tends to suggest that there were some culprits that where directly related to the financial crisis of 2008 which include the greedy banks and other financial institutions with their irresponsible and uninformed behaviour, the evenly greedy borrowers, the absence of regulations covering all the financial institutions involved and not just banks, the lacunae of vigilant supervision at both the states and federal levels, the non-regulated and non-transp arnt denotation of the financial innovations, the failure of the rating agencies to do their job and finally the easyn up monetary indemnity of the Greenspan era in the years 2001-2004.Mr Greenspan, testifying on October 23, 2008 before a Congressional Committee, admitted his error in believing that enthronement managers would f atomic number 18 prudence in their operations and authentic that the regulative system was loose and fundamentally obsolete.Since the get goingning of the economic recession, there has been a high reduction in brand-new housing starts after a reduced number of sales. Berkeley Homes for workout, reported sales down by 50% in the pass of 2008, alike with housebuilders sh ars dropping to low levels, there is major financing problems which wait to suffer.Housing Developments PolicyTuralay (2008) appears to suggest that at the beginning of the downturn, the position of the UK housing market did not appear to be that bad as it was esteem that there would be a moderate slow down in housing sales and then a fairly rapid convalescence process which would not adversely affect the economy, however, this did not try to be the case and no-one could have predicted what actually happened.Alt hough UK economist Andrew Oswald, famously decl ard in November 2002I think we are about to go through the great housing crash of 2003 to 2005. . . . I notify you to sell your house, and light upon into rented accommodation Panic testament then set in?(Pickard, 2005, p. 9).When canvass the period of July-October 2007 with July-October 2008, evidence suggests that a fall in average sale prices of just about 14 per centime ( shore up Registry, 2008). It has been noted by Pryce Sprigings (2008) that measuring price change is hampered by the fact that selling propagation have risen easily and indices are therefore not comparing like with like ideally one would like to compare, for example, the acerage price of houses that sold within a month on the market in 2007 with average prices of houses that sold within a month on the market in 2008.Evidence in addition suggests that proceeding volumes have fallen dramatically from a violate 111,000 sales per month in England and Wales among July and October 2007 to 45,000 sales per month mingled with July and October 2008, which is a fall of 60 per cent (Land Registry, 2008). Other selective information sources also reported this fall including Halifax, Nationwide, Land Registry and Council of Mortgage Lenders (CML). Some locations are telling even greater falls, with city centre flat and flat markets appearing to be peculiarly vulnerable.During Oswalds prediction, real average house prices rose at one of the steepest rates recorded in forward-looking times, by nearly a draw and fag end in real terms, from 140,593 in 2003 quarter 1, to 173,412 in 2006 quarter 1, based on nationwide real mix adjusted house prices see Figure 1 downstairs, and go on to rise for a march on 2 years until quarter 4 of 2007.Figure 1 touchable theater of operations PricesThere appears to have been noteworthy early interventions from the government and the Bank of England to keep both the housing market and the wider economy on course. sequential cuts to base rates, addition of 50bn of liquidity into the finance markets by the Bank of England to unbosom the credit crunch, and 2.7bn fiscal improvement to balance wheel low-income households for the withdrawal of the 10p tax rate. It was expect that these would all combine to form an patently positive reinforcement, however this would prove not to be the case as in March 2008, initial indications emerged of a somewhat more agile slowdown in the housing sphere was about to develop.The RICS housing market analyse of that month undertake that surveyor attitude with regard to house prices had vitiated to the last-place point since the survey began in 1978 and the ratio of completed sales in the previous three months to the stock of unsold attribute on the market fell to 0.224, the lowest since September 1996 (RICS UK Economic Brief, 2008).With mortgage approvals falling by 44 per cent in the same year (2008), this resulted in a significant fall in hou sing demand which led to banks being unwilling to offer new loans on houses.Although there is no surprise that the housing market has took a downturn and because this has happened before, there are no unexpected events occurring, Pryce and Sprigings tend to suggest that the speed and severity of the decline has been unusual. They go on to announce that this leads us to naturally question whether our policies, our regulatory frameworks, our collective coming to housing and cultural obsession with house prices, have in some way exacerbated this particular manifestation of that cycle by sustaining the upswing well beyond mean trend and perhaps resulting an unnecessarily sever and rapid downturn (Pryce and Sprigings, 2008).These questions however are not wholly of interest to housing professionals as cogitate between residential property and the broader market as well recognised. An example of this is stated by Goodhart and Hofmann (2008, p.180), where they finda significant multidir ectional link between house prices, monetary variables, and the macroeconomy with the effects of gold and credit amplified when house prices are booming?.It is agreed by Maclennan and Pryce that housing impacts on the real economy via the construction, financial, estate agency and legal sector and through housing blondness financed consumption, all of which are sensitive to housing market fluctuations, and all have bring increasingly inter-linked across nations as a result of the globalization of capital and labour (Maclennan and Pryce, 1996).It is also in savvy with numerous authors, Malpass in particular, that housing also impacts on eudaemonia not only through homelessness caused by repossessions (i.e. owner occupiers and renters affected by landlord default) at a time of crisis, yet increasingly through legality release funding of preparation support (including accommodation) at the start of manner and elderly care at the end. (Malpass, 2005). some other article which ba cks Malpass suggestion is the promulgation of the Homes and Communities Agency (HCA) which has confirmed the death of Local Authority New shape (LANB) as a national programme. This is a result of the Treasury announcing that it was stabbing 220 million from HCAs budget, this follows on from the cut to the May budget of 230 million.The new builds where seen as a event to ease the housing crisis of the UK since the recession and to add to Malpass argument, Baroness Hanham stated in the House of passkeysThere will be casualties I dont have any doubt that there will be casualties?Furthermore to this statement, Labours Lord McKenzie warnedIt will force many to move or end up homeless and create ghettos of the poor?.Unfortunately, the literature and polity debates on the constitution and consequences of housing markets have evolved rather dichotomously. As Maclennan (2008, p. 424) observedMany nations are now involved in two housing discussions, namely homelessness and affordabil ity? and house price booms, bubbles and busts. The first theme has generally been the domain of social insurance policy ministries, lobbies and researchers (Carter and Polevychok, 2004).The bet on has absorbed the macroeconomic policy community, including central banks, finance ministries, financial institutions and some academic economists, who are touch on about stableness?. Affordability and stability are often discussed as if they are unrelated, not just in the press, but also within policymaking circles.?Researchers can now endeavour to bridge deck this gap in housing discussions. By using the analogy of sowing and reaping, any(prenominal) a man soweth, that shall he also reap (Galations 67, major power James Version). It can be highlighted how scrupulous aspects of the existing recession should require policy makers and researchers to reflect on the failures of policy that have arisen as a result of the fragmented nature of housing thinking within groundbreaking gover nments? (Maclennan, 2008).Pryce and Sprigings propose that the great correction that is currently underway is a consequence, not only of transcendent global forces, but also significantly of UK policy decisions on financial liberalisation and housing. And if we are reaping what we have sown in domestic policy, who are the winners and losers, and what are the implications for how we evaluate UK post-war policy?It has been made give the axe that such issues are underpinned by major policy, theoretical, and empirical questions that will close to probably be debated at space in the future. What Pryce and Sprigings have done, is highlighted the issues and confide that highlighting these issues will offer some key pointers as to how the future debate should be structured and what talent be done to ensure a more integrated approach to modernising UK housing policies.It is argued that successive governments i.e. hidebound Party and Labour Party have promoted homeownership since the end of the Second serviceman War and its benefits it brings financially to the lease bearer if they are the occupier as one of the White Papers take the stand from 1953, which statesOne object of future housing policy will be to continue to promote, by all possible means, the building of new houses for owner handicraft. Of all forms of saving this is one of the best. Of all forms of ownership this is one of the most satisfying to the individual and the most beneficial to the nation? (1953White Paper, Houses The Next Step). bit by bit homeownership became deeply embedded in the UK psyche as the tenure of object (Ronald, 2008). save, people then become aware that homeownership may not be best suited for everyone and this is a point that is raised by Sprigings (2008) where he identified that by supporting(a) low-income households into homeownership, we are subjecting them to the worst of its costs and risks while the market may snare for them the potential of its benefits.This i dea was also plunk for up by Pickard (2005) where he stated that housing is believed to be a great long-term investment on average, but for the deprived areas, and for the poorest households, homeownership may simply not arouse the promised benefits.Housing developments and the global recession can be seen as interlinked with real groups of society and those in less secure jobs as people on low income will bear the biggest brunt of the recession as low income workers and people in less secure jobs are more than belike to see financial difficulties when it comes to mortgage repayments as they are likely to lose their jobs or see acclivity inflation and rising interest rates and therefore low income households are likely to set off homeownership at the worst point because they are facing the biggest impact of the recession and also when the market begins to resume to normality again, low-income households may find it harder to go into the housing market when house prices are l ow because there is a proven correlation between credit being made available and housing prices and low-income households may not be able to obtain credit when house prices are let off low therefore not alter them to enter the housing market when it seems most beneficial.The CML also back up this idea as figures for October 2008 show that, the value of loans has decreased to 83 per cent of the value of the property therefore, as it has been established that long term dividends on housing can be superior, low-income households will find it difficult to regard these dividends as they will be exiting the housing market when it begins to deteriorate and nerve-racking to enter the housing market when it is difficult to obtain credit.Pryce (2008) seems to perceive that the progress of homeownership by successive UK governments and therefore the rapid increase of owner occupation may have inadvertently produced a money pump operative in the opposite direction. Another theory which P ryce (2008) identifies is the fact that low-income and particularly cultural groups are less likely to enjoy the benefits of inter-generational housing welfare transfer. so-and-so (2003) also backs up the second theory of Pryce (2008) by identifying that children from larger families get together less wealth than do those from smaller families and that siblings dilute parents finite financial resources and non material resources. Sibship size also reduced that likelihood of receiving a confidence account or an hereditary pattern and decreases home and stock ownership.Buy-to-Let MortgagesBuy-to-Let mortgages where developed in 1995 and where designed as a new financial product in the UK which enabled individuals to purchase a mortgage on a property for the social occasion of letting the property out to future tenants.The benefits from these mortgages can include a stable income from rental receipts, as well as an accumulation of wealth if house prices go up. However one of the m ain factors of risk with taking out a buy-to-let mortgage is leverage speculation where the landlord purchases a property expecting to sell the house at a later date for a higher price or that rental income will exceed the repayment amounts of the initial loan.Buy-to-Let mortgages have became extremely popular with apprentice investors as this grapheme of mortgage attracts middle income people to start to develop into small-scale landlords as a means of investment for their retirement. The volume of these loans grew rapidly in value as shown in Figure 2.Figure 2BTL loanPryce (2008) expresses carry on at the fact that 90 per cent of total BTL advances since 1999 have been taken out during periods of above-trend house prices, and 74 billion of BTL mortgages, which is more than half of the total BTL advances since 1999, were issues at the very peak of the housing boom. This can be seen in Figure 3.Fig 3It is therefore in agreement that, a significant proportion of BTL loans are at risk because there is consensus that the value of securities will fall below the outstanding mortgage debts. This consensus is backed-up by the fact that repossessions on BTL properties as a per cent of all BTL mortgages just about treble in the space of 18 months from the second half of 2005 to the first half of 2007 before the first round of gloomy house price results were released in late 2007. Latest CML data also reinforces this claim as they show a large increase in BTL accounts over three months in arrears at the third quarter of 2008 having trebled in number in 12 months to close to 18,000. (Pryce and Sprigings 2008).If home owners begin to default on their loans then the impact could be significant not only for lenders, but for particular sectors of the housing market as 80 per cent of BTL properties are terraced of flats and these account for almost a third of the broad(a) UK private rented stock (Sprigings, 2008).One of the key features of the BTL which there is much agreement on is the impact it seems to have had on new housing supply with flats coming to dominate supply, particularly in city markets. (Taylor 2008, Sprigings 2008).Fig 4Effects of the Recession on the Housing MarketEffects of the Recession on the Housing MarketIntroductionThis part of the dissertation seeks to view and investigate the cause of the current global recession and how it has affected the housing market in the UK.Housing Market TrendsAfter the housing markets spectacular collapse in the 1990s, the UK housing market staged a significant revival. According to the HBOS index, the average house price stood at about 163,000 in 2005, approximately double the 82,000 it would have been worth in 2000. Cameron (2005) suggests that house prices surpassed their 1989 peak, relative to average household incomes. The other traditional measure of affordability, the ratio of interest payments to income, is not so overstretched, but only if capital repayments and unsecured debt are i gnored.In addition, the strength of the housing market reflects the exceptional economic performance of the economy in 2005, which in turn is partially due to the sensible independent monetary policies pursued by the Bank of England Cameron (2005). As a result, it is suggested that Britain dealt with the world economic slowdown of 2001-2003 a great deal better than the majority of chief economies, producing six per cent growth.This vigorous expansion cannot completely describe the strength of the house price boom. Consequently, numerous economists have argued that there is a bubble in the British housing market, in common with a number of other countries, such as Spain, Australia, Canada, Sweden, and parts of the USA.FIGURE 1Figure 1 shows the ratio of average house prices to average earnings, a key measure of affordability, for Great Britain and three major regions up to 2004 which is before the economic recession struck.As is visible, there is a positive contrast of cyclical behav iour in each series, with a surprising rise since 1999. According to the HBOS index, prices rose by only 1.3% over the nine months from July 2004 to April 2005. One of the main causes of this poor rise was due to the fact that many households were affected by the increases of the Bank of England base rate. Moreover, the increasing lack of demand within first time buyers, together with decreased numbers of house sales and low request rates for mortgages, implies that house prices have become separated from their underpinnings.The Nature of the Housing MarketHousing markets are unusual for a number of reasonsHousing markets are peculiar for a number of reasons. First, houses take time to build, so when demand rises, supply can only respond with a considerable lag. Indeed, to all intents, the short-run supply of housing is fixed. Second, houses are an asset that pays an implicit income (that is, the amount of rent that the owner saves by owning a house), so the value of the house shoul d reflect expectations about future rents. But more importantly, since house-ownership in the UK is so widespread, a house is most households most important asset and since prices can go down as well as up, households are thereby exposed to a considerable amount of risk (almost half a million households had their homes repossessed in the 1990s). Unfortunately, it is not really possible to offset this risk since nobody offers insurance against a fall in prices.The Global economic recessionIt seems to have been agreed that the financial crisis which formed the birth of the current global economic recession was formed in the millennia of 2000 as a result of several factors which influenced increased housing sales and increased mortgage lending. Sakbani (2009), Turalay (2009), Sel (2009)One of the main factors which influenced the financial crisis was the boom in the housing market which was the result of increased supply of housing which persuaded financial institutions to increase and extend mortgages at attractive rates which mortgages borrowers could not afford to pay back. At the time of increased mortgage lending, the mortgage lenders had liquid assets that where at a level never seen before and this encouraged them to invest their assets into higher earning assets. This boom gave mortgage lenders an opportunity to double their portfolio of mortgage lending in respect of the past 10 years and mortgages reached some 50 per cent of their total lending assets after 2001 (Sakbani, 2009).The second factor which influenced housing sales was the record low-interest rates which were put in place by major banks to attract would be house buyers into purchasing mortgages at very low interest rates and other influences was the deregulation of financial institutions, there was a attitude throughout the major central banks of self regulation and with the increased financial innovations, major banks tended to regulate themselves.The final major factor was the disappearance of inflation fear as banks began to grow and increase portfolios, their self confidence began also to grow and any fears which were previously held started to disappear and this therefore relaxed their customer vigilance (Sakbani, 2008).As the demand for housing rose in the last decade and a half, this reached a record high in all major countries including the UK and USA. In the USA in particular, housing units sold in 2005 reached a peak of 1,283,000 as compared to an average of 609,000 in 1995-2000. More than 6 million units were sold in the five years up to 2006 (US Economic Forecast, 2009). The affects of this, increased the wealth and amount of disposable income available to households which in turn, increased the growth of the US economy up to 2007. It is recognised however, that this increase in economies and housing sales would not have taken place if there was a reduction in the availability of cheap mortgages being made available in the USA and UK up to 2005 and the subst antial increase of low interest rates (IMF, 2008).The major banks began to operate under reduced regulation and with the global financial markets know in full swing, this increased the housing boom in the UK as some mortgages contained grace periods of up to three years and minimal down payments where required and with the introduction of low-interest rates, only fuelled the housing boom.Furthermore, these mortgages that where being taken out by borrowers would have originally been considered as non-credit worthy or, at very least, borrowers who incurred debts beyond their capacity to pay back (Ronald, 2008). As the banks began to run these debts, they ensured that the higher the risk, the higher should be the lending rate which therefore gave rise to the subprime mortgage market this is a market whose borrowers may have difficulty maintaining the repayment schedule.Proponents of subprime lending maintain that the practice extends credit to people who would otherwise not have access to the credit market. As Professor Rosen of Princeton University explained,The main thing that innovations in the mortgage market have done over the past 30 years is to let in the excluded the young, the discriminated against, the people without a lot of money in the bank to use for a down payment.?It has now been agreed that this would have only ended in one way, this being collapse of the housing market and financial institutions. As borrowers started to run out of finances to repay their mortgages and defaults began to increase, the rate of increase in housing prices started to fall and could not compete with the rate of debt which therefore meant that borrowers could not refinance their loans or sell their houses at large profits (The) Economist (2008), Sakbani (2008), Elise (2008).One way this could have been prevented is that if banks had extended their mortgage loans under the old conditions of mortgage lending, they would have had to hold them on their books and eventually would have run out of funds. But starting in the late 1980s, financial innovations made it possible for mortgage lenders to unload their loans to pools, which can transform these personalised, non-negotiable obligations into derivative securities guaranteed by the mortgages (Sakbani, 2008).After the crisis erupted, the International Monetary Fund (IMF, 2008) estimated the size of these securities at more than $945 billion, while Goldman Sachs put them at more than $1.0 trillion. In September 2008, the IMF revised its estimate to $1.4 trillion ((The) Economist, 2008). On January 28, 2009 the IMF once more revised its estimate to $2.2 trillion. All these estimates therefore prove that, nobody had any idea of the amount of the non-performing assets.Sakbani (2008) tends to suggest that there were many culprits that where directly related to the financial crisis of 2008 which include the greedy banks and other financial institutions with their irresponsible and uninformed behaviour, the equally greedy borrowers, the absence of regulations covering all the financial institutions involved and not just banks, the lacunae of vigilant supervision at both the states and federal levels, the non-regulated and non-transparent character of the financial innovations, the failure of the rating agencies to do their job and finally the loose monetary policy of the Greenspan era in the years 2001-2004.Mr Greenspan, testifying on October 23, 2008 before a Congressional Committee, admitted his error in believing that investment managers would exercise prudence in their operations and accepted that the regulatory system was loose and fundamentally obsolete.Since the beginning of the economic recession, there has been a high reduction in new housing starts after a reduced number of sales. Berkeley Homes for example, reported sales down by 50% in the summer of 2008, also with housebuilders shares falling to low levels, there is major financing problems which continue to suffer.Housing Developments PolicyTuralay (2008) appears to suggest that at the beginning of the downturn, the position of the UK housing market did not appear to be that bad as it was expected that there would be a gradual slow down in housing sales and then a fairly rapid recovery process which would not adversely affect the economy, however, this did not prove to be the case and no-one could have predicted what actually happened.Although UK economist Andrew Oswald, famously declared in November 2002I think we are about to go through the great housing crash of 2003 to 2005. . . . I advise you to sell your house, and move into rented accommodation Panic will then set in?(Pickard, 2005, p. 9).When comparing the period of July-October 2007 with July-October 2008, evidence suggests that a fall in average sale prices of around 14 per cent (Land Registry, 2008). It has been noted by Pryce Sprigings (2008) that measuring price change is hampered by the fact that selling times have risen substantially and indices are therefore not comparing like with like ideally one would like to compare, for example, the acerage price of houses that sold within a month on the market in 2007 with average prices of houses that sold within a month on the market in 2008.Evidence also suggests that transaction volumes have fallen dramatically from around 111,000 sales per month in England and Wales between July and October 2007 to 45,000 sales per month between July and October 2008, which is a fall of 60 per cent (Land Registry, 2008). Other data sources also reported this fall including Halifax, Nationwide, Land Registry and Council of Mortgage Lenders (CML). Some locations are showing even greater falls, with city centre flat and apartment markets appearing to be particularly vulnerable.During Oswalds prediction, real average house prices rose at one of the steepest rates recorded in modern times, by nearly a quarter in real terms, from 140,593 in 2003 quarter 1, to 173,412 in 2006 quarter 1, b ased on nationwide real mix adjusted house prices see Figure 1 below, and continued to rise for a further two years until quarter 4 of 2007.Figure 1Real House PricesThere appears to have been significant early interventions from the government and the Bank of England to keep both the housing market and the wider economy on course. Consecutive cuts to base rates, addition of 50bn of liquidity into the finance markets by the Bank of England to alleviate the credit crunch, and 2.7bn fiscal improvement to balance low-income households for the withdrawal of the 10p tax rate. It was expected that these would all combine to form an apparently positive reinforcement, however this would prove not to be the case as in March 2008, initial indications emerged of a somewhat more speedy slowdown in the housing sector was about to develop.The RICS housing market survey of that month specified that surveyor attitude with regard to house prices had weakened to the lowest point since the survey bega n in 1978 and the ratio of completed sales in the previous three months to the stock of unsold property on the market fell to 0.224, the lowest since September 1996 (RICS UK Economic Brief, 2008).With mortgage approvals falling by 44 per cent in the same year (2008), this resulted in a significant fall in housing demand which led to banks being unwilling to offer new loans on houses.Although there is no surprise that the housing market has took a downturn and because this has happened before, there are no unexpected events occurring, Pryce and Sprigings tend to suggest that the speed and severity of the decline has been unusual. They go on to express that this leads us to naturally question whether our policies, our regulatory frameworks, our collective approach to housing and cultural obsession with house prices, have in some way exacerbated this particular manifestation of that cycle by sustaining the upswing well beyond mean trend and perhaps resulting an unnecessarily sever and rapid downturn (Pryce and Sprigings, 2008).These questions however are not wholly of interest to housing professionals as links between residential property and the broader market as well recognised. An example of this is stated by Goodhart and Hofmann (2008, p.180), where they finda significant multidirectional link between house prices, monetary variables, and the macroeconomy with the effects of money and credit amplified when house prices are booming?.It is agreed by Maclennan and Pryce that housing impacts on the real economy via the construction, financial, estate agency and legal sector and through housing equity financed consumption, all of which are sensitive to housing market fluctuations, and all have become increasingly inter-linked across nations as a result of the globalisation of capital and labour (Maclennan and Pryce, 1996).It is also in agreement with numerous authors, Malpass in particular, that housing also impacts on welfare not only through homelessness caused by repossessions (i.e. owner occupiers and renters affected by landlord default) at a time of crisis, but increasingly through equity release funding of education support (including accommodation) at the start of life and elderly care at the end. (Malpass, 2005).Another article which backs Malpass suggestion is the announcement of the Homes and Communities Agency (HCA) which has confirmed the closing of Local Authority New Build (LANB) as a national programme. This is a result of the Treasury announcing that it was cutting 220 million from HCAs budget, this follows on from the cut to the May budget of 230 million.The new builds where seen as a solution to ease the housing crisis of the UK since the recession and to add to Malpass argument, Baroness Hanham stated in the House of LordsThere will be casualties I dont have any doubt that there will be casualties?Furthermore to this statement, Labours Lord McKenzie warnedIt will force many to move or end up homeless and create ghettos of the poor?.Unfortunately, the literature and policy debates on the nature and consequences of housing markets have evolved rather dichotomously. As Maclennan (2008, p. 424) observedMany nations are now involved in two housing discussions, namely homelessness and affordability? and house price booms, bubbles and busts. The first theme has largely been the domain of social policy ministries, lobbies and researchers (Carter and Polevychok, 2004).The second has absorbed the macroeconomic policy community, including central banks, finance ministries, financial institutions and some academic economists, who are concerned about stability?. Affordability and stability are often discussed as if they are unrelated, not just in the press, but also within policymaking circles.?Researchers can now endeavour to bridge this gap in housing discussions. By using the analogy of sowing and reaping, whatsoever a man soweth, that shall he also reap (Galations 67, King James Version). It can be highlight ed how scrupulous aspects of the existing recession should require policy makers and researchers to reflect on the failures of policy that have arisen as a result of the fragmented nature of housing thinking within modern governments? (Maclennan, 2008).Pryce and Sprigings propose that the great correction that is currently underway is a consequence, not only of transcendent global forces, but also significantly of UK policy decisions on financial liberalisation and housing. And if we are reaping what we have sown in domestic policy, who are the winners and losers, and what are the implications for how we evaluate UK post-war policy?It has been made clear that such issues are underpinned by major policy, theoretical, and empirical questions that will most probably be debated at length in the future. What Pryce and Sprigings have done, is highlighted the issues and hope that highlighting these issues will offer some key pointers as to how the future debate should be structured and wha t might be done to ensure a more integrated approach to modernising UK housing policies.It is argued that successive governments i.e. Conservative Party and Labour Party have promoted homeownership since the end of the Second World War and its benefits it brings financially to the lease holder if they are the occupier as one of the White Papers show from 1953, which statesOne object of future housing policy will be to continue to promote, by all possible means, the building of new houses for owner occupation. Of all forms of saving this is one of the best. Of all forms of ownership this is one of the most satisfying to the individual and the most beneficial to the nation? (1953White Paper, Houses The Next Step).Gradually homeownership became deeply embedded in the UK psyche as the tenure of aspiration (Ronald, 2008). However, people then become aware that homeownership may not be best suited for everyone and this is a point that is raised by Sprigings (2008) where he identified that by encouraging low-income households into homeownership, we are subjecting them to the worst of its costs and risks while the market may restrict for them the potential of its benefits.This idea was also backed up by Pickard (2005) where he stated that housing is believed to be a great long-term investment on average, but for the deprived areas, and for the poorest households, homeownership may simply not produce the promised benefits.Housing developments and the global recession can be seen as interlinked with certain groups of society and those in less secure jobs as people on low income will bear the biggest brunt of the recession as low income workers and people in less secure jobs are more than likely to face financial difficulties when it comes to mortgage repayments as they are likely to lose their jobs or see rising inflation and rising interest rates and therefore low income households are likely to leave homeownership at the worst point because they are facing the biggest impact of the recession and also when the market begins to resume to normality again, low-income households may find it harder to re-enter the housing market when house prices are low because there is a proven correlation between credit being made available and housing prices and low-income households may not be able to obtain credit when house prices are still low therefore not enabling them to enter the housing market when it seems most beneficial.The CML also back up this idea as figures for October 2008 show that, the value of loans has decreased to 83 per cent of the value of the property therefore, as it has been established that long term dividends on housing can be superior, low-income households will find it difficult to witness these dividends as they will be exiting the housing market when it begins to deteriorate and trying to enter the housing market when it is difficult to obtain credit.Pryce (2008) seems to perceive that the promotion of homeownership by successive U K governments and therefore the rapid increase of owner occupation may have inadvertently produced a money pump working in the opposite direction. Another theory which Pryce (2008) identifies is the fact that low-income and particularly ethnic groups are less likely to enjoy the benefits of inter-generational housing welfare transfer.Keister (2003) also backs up the second theory of Pryce (2008) by identifying that children from larger families accumulate less wealth than do those from smaller families and that siblings dilute parents finite financial resources and non material resources. Sibship size also reduced that likelihood of receiving a trust account or an inheritance and decreases home and stock ownership.Buy-to-Let MortgagesBuy-to-Let mortgages where developed in 1995 and where designed as a new financial product in the UK which enabled individuals to purchase a mortgage on a property for the purpose of letting the property out to future tenants.The benefits from these mor tgages can include a stable income from rental receipts, as well as an accumulation of wealth if house prices go up. However one of the main factors of risk with taking out a buy-to-let mortgage is leverage speculation where the landlord purchases a property expecting to sell the house at a later date for a higher price or that rental income will exceed the repayment amounts of the initial loan.Buy-to-Let mortgages have became extremely popular with apprentice investors as this type of mortgage attracts middle income people to start to develop into small-scale landlords as a means of investing for their retirement. The volume of these loans grew rapidly in value as shown in Figure 2.Figure 2BTL loanPryce (2008) expresses concern at the fact that 90 per cent of total BTL advances since 1999 have been taken out during periods of above-trend house prices, and 74 billion of BTL mortgages, which is more than half of the total BTL advances since 1999, were issues at the very peak of the h ousing boom. This can be seen in Figure 3.Fig 3It is therefore in agreement that, a significant proportion of BTL loans are at risk because there is consensus that the value of securities will fall below the outstanding mortgage debts. This consensus is backed-up by the fact that repossessions on BTL properties as a per cent of all BTL mortgages almost doubled in the space of 18 months from the second half of 2005 to the first half of 2007 before the first round of gloomy house price results were released in late 2007. Latest CML data also reinforces this claim as they show a large increase in BTL accounts over three months in arrears at the third quarter of 2008 having trebled in number in 12 months to around 18,000. (Pryce and Sprigings 2008).If home owners begin to default on their loans then the impact could be significant not only for lenders, but for particular sectors of the housing market as 80 per cent of BTL properties are terraced of flats and these account for almost a t hird of the entire UK private rented stock (Sprigings, 2008).One of the key features of the BTL which there is much agreement on is the impact it seems to have had on new housing supply with flats coming to dominate supply, particularly in city markets. (Taylor 2008, Sprigings 2008).Fig 4