In the News Teaching Activity – why are house prices stagnating in the UK? (May 2024)

The latest house price data shows a stagnation in house prices as the housing market responds to higher mortgage interest rates, but there are some regional differences.

UK house prices have remained relatively flat with just a marginal increase in April, according to the Halifax. Rising mortgage rates stemming from reduced expectations for Bank of England interest rate cuts are a key cause of this stagnation in house prices..Despite this, some estate agents forecast a significant rise in prices by 2028, citing expectations of a stronger UK economy and interest rate reductions in the not-too-distant future. Affordability remains a challenge, especially for first time buyers, particularly in the south, where higher mortgage costs have dampened demand and led to stagnant or declining prices. Indeed, the regional picture is somewhat ‘wonky’ with house price changes across regions showing quite a bit of variation. The housing market is an important one because it can influence the confidence of consumers and investors, leading to wider impacts on the economy.

House prices stagnate as mortgage rates rise - BBC News

1. Explain why mortgage rates have been rising in recent months even though the Bank base rate not risen.
2. Using the concepts of price and income elasticity of demand, assess why ‘the market is wonky – with the north/south divide seeing prices climb in the north and drop steadily in the south".
3. Using the information from the article and your own knowledge, discuss the costs and benefits of higher house prices.