1.0) Proposed Working Title:
The “Credit Crunch” and its impact on the property market in the UK: a critical evaluation
2.0) Rationale for chosen topic:
I have decided to work on this topic because of my interest in property market. In my professional experience with human resources, my basic job was to recruit managers for India’s estate giants. While recruiting candidates at Asst. Manager or Managerial post keeping myself updated with property market knowledge was essential. As I am pursuing MBA, acknowledging details of UK’s economy and property market will help in future.
3.0) Research Background/Context:
This proposal proposes on Credit Crunch and its impact on UK Property Market through a brief study.
“Credit Crunch” or “Credit Crisis” can be stated as a sudden financial distress where the whole economy of the country is affected. In other words “Credit Crunch” can be defined as the downfall of the availability of loans or hike in the interest rate on the loans given by the banks. Many people have questions regarding “Credit Crunch” as it can be heard every week, in the news channels, News paper or in the daily walks of life. Basic questions arise related to credit crunch i.e. “What is Credit Crunch?”, “Since when did credit crunch come into existence?”, “How has credit crunch affected their economy?” and so on...
Credit crunch initiated from the US, where the lending institution invested huge capital in subprime market in the form of loan and mortgage, by projecting profitable returns. However the borrowers were unable to repay due to various factors which caused the downfall of capital returns resulting in “Credit Crunch”. Because of this US economy suffered a great set back. US Treasure Secretary, Henry Paulson, said “We’re going through a challenging time with our economy…I think it’s going to be months that we’re working our way through this period”. (Source: “City A.M. Newspaper, Issue 697, Monday 21 July 2008, Katie hope, pg no 3”).
All the major banks have tie-ups between them. Northern rock, one of the UK’s biggest mortgage giant ran out cash somewhere around august 2007. In the wake of the Northern Rock collapse and the credit crunch, good news in short supply. In a state to avoid recession in 2009 as along with mortgage company banks in UK has been suffering. In the near future interest rates are expected to fall below their current 5 percent rate, this is according to a member of Bank of England’s Monetary Committee (MPC).
(Source: “City A.M. Newspaper, Issue 697, Monday 21 July 2008, David Crow, pg no 1”).
Middle Class people are the ones who are affected by current economic imbalance, where earnings are limited and commodity prices are increasing rapidly. With the start of Credit Crunch, there is decline in Housing and Commercial Property Market because of the loans provided by banks or other financial companies are of high interest rates which continuous increasing in Inflation. Due to this the major house builders and other real estate companies are about to cut many jobs which can result in unemployment on a very large scale. It is expected that unemployment might rise up to 8 percent till 2010.
(Source: “City A.M. Newspaper, Issue 697, Monday 21 July 2008, Louisa Bojensen, pg no 7”), (Source:“http://www.joneslanglasalle.co.uk/en-gb/news/2008/Credit_crunch_impact_what_next_for_commercial_property_in_the_UK.htm)”,Madeleine Little, accessed on 20/07/08).
In this current scenario, where credit crunch is on its toll, individuals should rather stop quitting their jobs, in hopes of getting new job, as it can later prove to be a tough time getting an another job. However, as there is a saying that “Every cloud has a silver lining” it is expected that UK economy will stabilize and overcome “Credit Crunch” in the near future as analyst have already taken precautionary majors.
(Source: “http://www.rbooks.co.uk/product.aspx?id=1847920306” [Dan Atkinson, Larry Elliot published on 5 June 2008, accessed on 19/07/08) (Source: “http://www.wellestates.com/northern_rock_disaster.htm” [ Leslie Hardy, 6 March 2008,accessed on 19/07/08).
4.0) Research Questions:
Basic questions like: What is Credit Crunch? Since When Credit crunch has come into existence? Why credit crunch is so feared? How hard has the Credit Crunch hit the UK economy? What are the possible ways to avoid Credit crunch?
5.0) Research Objective:
This proposal proposes a brief study on Credit Crunch and its impact on UK property Market. The main objective behind this topic is to critically evaluate the current market trends and how credit crunch has affected it? In this process of evaluation, this research will provide me an insight of the UK Property Market
Therefore the result of this proposed research would come handy to people who are looking out to invest in the property market.
The research objectives are stated below:
1) To understand basic concept about credit crunch.
2) To explore the financial market and their condition.
3) To evaluate the impact of credit crunch on investment and occupational markets as the demand for such market is very uncertain.
4) To provide with alternatives to avoid credit crunch.
6.0) Literature Review:
Literature review is defined as “A comprehensive survey of publications in a specific field of study or related to a particular line of research”. (Source: http://new.wales.gov.uk ). The literature review in my work consists of the views and opinions expressed by other Experts who have published their work online.
Ben Bernanke and Cara Lown (1991) offer a specific definition of a Credit Crunch: “a significant leftward shift in the supply curve for bank loans, holding constant both the safe real interest rate and the quality of potential borrowers.” In less technical terms, the authors propose an empirical standard; if, at any given level of interest rates and creditworthiness of borrowers, borrowing falls below its historic norms, then we may conclude there’s a credit crunch”.(Source: www.nationalcity.com ). The definition proposed by Ben Bernanke and Cara Lown (1991) highlights the main key issues causing financial crisis
Now, according to (Joe Taylor, 2007) “to understand the credit problem you must first understand a little about how the bond market works”. Detail information of Bond market will be collected by Qualitative Market. Some experts such as Joe Taylor (2007) and Andrew Clark (2008) have done intensive research on UK and US financial market commenting on the reasons behind such credit crisis. Financial giants like Northern Rock, Fannie Mae and Freddie Mac have borrowed lot of capital from Bank of England & Federal Bank (The Economist, March 15th-21st, Page 14 and 15) since they have invested a lot of capital in the US market.
In order to conduct a research on the given proposal secondary data method is used extensively. The nature of this proposal is exploratory, as the literature on “Credit Crunch” or “Property Market” was not readily available.
According to Pentti Routio (2007) “Exploratory research means that hardly anything is known about the matter at the outset of the project. You then have to begin with a rather vague impression of what you should study, and it is also impossible to make a detailed work plan in advance.” An In-depth interview with the local estate agents will be carried out in order to obtain information about the residential as well as commercial market. In-depth interview can be stated as unstructured or direct way of getting information.
8.0) Data Collection Methods:
The secondary data collection methods will be used to collect data for my research report. Internet have been an important tool to gather information, many search engines were used i.e. Google, Yahoo, ask.com and few websites. E-books, Magazine, Newspapers and journals also came handy in this research as it helped to know about the author’s point of view regarding Credit Crunch. In-depth interview will be conducted on one to one basis with the local estate agents. Questions will be prepared beforehand so as to make the best use of the available time. The advantage of direct interview will provided me detail knowledge about the local market and what are the current trends in property market.
9.0) Data analysis :
In this proposed proposal, the combination of both qualitative and quantitative data analysis is used but more of qualitative data analysis method is used rather than quantitative data analysis. Qualitative data analysis provides wider information whereas Quantitative data analysis provides more specific information. With this combination, a clear understanding of the topic is expected. As said by Ian Dey (1993) “Comprehensive comparison between qualitative and quantitative is made in order to reach deep understanding and to build strong foundation for qualitative data analysis”
1) (Source: http://new.wales.gov.uk/about/aboutresearch/social/glossary/?lang=en, accessed on 23/07/2008)
2) Joe Taylor (August 27, 2007) Understanding The Credit Crunch [Online]
Available from URL: http://oakstreetadvisors.blogspot.com/2007/08/understanding-credit-crunch.html
[Accessed 20 July 2008]
3) Howard Fletcher ( February 24, 2008) Understanding The Credit Crunch [Online]
Available from URL: http://ezinearticles.com/?Understanding-The-Credit-Crunch&id=1005553
[Accessed 20 July 2008]
4) Pentti Routi ( August 3, 2007 ) Models in the Research Process [Online]
Available from URL: http://www2.uiah.fi/projects/metodi/177.htm
[Accessed 18 July 2008]
5) Ian Dey (1993) Qualitative Data Analysis [Online], London
Available from URL: http://www.geocities.com/zulkardi/fauzan.html
[Accessed 21 July 2008]
6) Ben Bernanke, Cara Lown (1991) National City (March 2008)-Financial Market outlook-“Credit Crunch” reality check [Online]
[Accessed 20 July 2008]
7) (Source: The Economist, March 15th-21st, Page 14 and 15)
8) Andrew Clark (July 15, 2008), The Guardian - Credit crunch: Fannie and Freddie rescued by government loan, New York [Online]
Available from URL: http://www.guardian.co.uk/business/2008/jul/15/subprimecrisis.marketturmoil
[Accessed 20 July 2008]
9) (Source: “http://www.rbooks.co.uk/product.aspx?id=1847920306” [Dan Atkinson, Larry Elliot published on 5 June 2008, accessed on 19/07/08)
10) (Source: “http://www.wellestates.com/northern_rock_disaster.htm” [ Leslie Hardy, 6 March 2008,accessed on 19/07/08).
11) (Source: “City A.M. Newspaper, Issue 697, Monday 21 July 2008, Louisa Bojensen, pg no 7”),
12) (Source:“http://www.joneslanglasalle.co.uk/en-gb/news/2008/Credit_crunch_impact_what_next_for_commercial_property_in_the_UK.htm)”, Madeleine little, accessed on 20/07/08).
13) ( Source : “ CITY A.M. Newspaper, Issue 697, Monday 21 July 2008, David Crow, pg no 1”)
14) ( Source : “ CITY A.M. Newspaper, Issue 697, Monday 21 July 2008, David Crow, pg no 1”)
15) (Source : “http://www.creditcrunchuk.net/” Credit Crunch information about the credit crunch, accessed on 17/07/08)