... three years at above 10% inflation. That was fantastic for people who had taken out huge mortgages because what they saw immediately after they'd taken those mortgages out was their salary increasing away and the mortgage staying exactly where it was, so those high mortgages suddenly became that much more affordable and easier to cope with. House prices are affected by a combination of supply and demand factors. The graph below illustrates the effect of an increase in market demand for properties in a particular area. Supply is relatively inelastic so that when the demand curve shifts out, the equilibrium market price will rise to P2. The demand for housing depends on many factors. The main factors are the cost of mortgage finance (including mortgage interest rates and credit availability), the real incomes of potential home-buyers and the general level of consumer confidence. Demand & Supply Side Factors: - Incomes have risen by ...

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