Northern house prices to fall further behind London

The North-South divide in British house prices is set to widen sharply this year and next, a leading economic think tank has warned.

London house prices are set to grow 2.4 per cent in 2012, while properties in the North-East will see values plummet by 2.7 per cent, as the capital remains relatively unharmed by the wider geographical impact of the double-dip recession.

A new study by the Centre for Economics and Business Research (Cebr) shows that homeowners in Yorkshire & the Humber, Wales, the North-West, Scotland and the North-East will see the values of their properties fall in each of the next two years. By contrast, London and the South East will grow by at least 2 per cent in both 2012 and 2013.

Douglas McWilliams, the chief executive at Cebr and a former chief economic adviser to business lobbyist the CBI, said: "Demand in the London market remains resilient with the ongoing eurozone drama piquing international interest in the capital. Furthermore, we can expect an abundance of affluent French citizens shopping for London homes if President [Francois] Hollande's proposed 75 per cent top rate of income tax is enacted."

While London property is a safe haven for wealthy overseas investors, low interest rates and a lack of housing supply have failed to prevent property slumps in other regions. The UK average house price change is expected to be an increase of just 1 per cent – an improvement on last year's 1.5 per cent fall, but way down on the 2007 pre-crash boom of 11 per cent.

However, figures released by the Home Builders Federation today show that a government-backed mortgage scheme to boost the housing market that was launched just 12 weeks ago has so far proved successful.

More than 500 people have reserved properties since NewBuy was introduced on 12 March, raising hopes that the scheme, which allows buyers to secure their home with a 5 per cent deposit, will lead to tens of thousands of sales over the next three years.