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Housing market

After over a decade of booming house prices which priced a large proportion of the population out of the market, house prices are now starting to fall. Economists are currently estimating that the decline in house prices will fall around 10 % in 2008 if they continue at current rates, and are likely to continue to drop beyond that. This is partly a knock-on effect from the worldwide economic slowdown as the result of the ‘credit crunch’. This is putting an end to the era of cheap credit that contributed to increased levels of personal debt, particularly tied up in unaffordable mortgages, and the house price boom. With many home-owners on existing cheap fixed-rate mortgages coming to the end of their deals, an increasing proportion of these home owners are struggling to re-mortgage at an affordable rate from risk-averse banks charging increasingly higher amounts.

What are the implications?

• A continued fall in house prices may result in a rise in home-owners in negative equity.
• Stricter lending habits by banks will make it harder to secure a mortgage and decrease the amount of first time buyers entering the housing market.  This may exacerbate the drop in house prices further.
• The Bank of England may cut interest rates further in an attempt to encourage lenders to pass on these cuts and make mortgage repayments more affordable.
• However, inflationary pressures may instead lead to further interest rate rises exacerbating the problem by increasing the cost of mortgage repayments.
• If mortgage borrowing rates continue to rise, this is likely to decrease consumer spending.
• An increase in rental property prices as more people are inclined to rent than buy at a time when prices are falling.
• Continued rising food and energy prices may also impact on home-owner's abilities to make their mortgage repayments, potentially increasing the rate of repossessions leading to higher levels of personal debt and eventually an increase in poverty.
• Higher mortgage rates could impact on levels of individual giving.
• Increased wealth inequality as some sections of the population are unable to buy their first home and some people are more affected by rising mortgage rates than others.

Moving forward:

This driver does not have direct implications for VCOs but it will impact on the other drivers listed below as well as many others. (There is often a relationship or interdependency between different drivers, which may be important to your organisation. As you scan each driver, it is important to think about its relationship or influence on others; if drivers are linked, then you need to think laterally to draw in all those that may be relevant.)

Stock market performance

Consumption culture and personal debt

Interest rates

Increased consumer spending and confidence

Poverty and inequality

Planned individual giving

However, here are some questions for your organisation to consider:

Changes to the housing market may impact on consumer spending and levels of debt which may impact on levels of individual giving.

• What strategies can your organisation put in place now to manage potential future changes in funding?
• Can you diversify your income sources or work in partnership with other organisations?

Organisations that work with homeless people, those in poverty or debt may find there is greater demand for their services.

How could an understanding of changing need help you to develop more effective services in the future? You could think about this in two ways:

• Opportunities to improve: Should you need to change how you work or be more responsive?
• Opportunities to innovate: Should you serve new or different users?