How did you do on the ladder?

This year has seen a reversal of fortunes: Cheap is cheerful, while top homes have hit a plateau

If anyone needs evidence as to where the financial aftershock of 11 September was felt most acutely, they only need look at the percentage increases at the top end of the market in London. This year there has been a reversal of fortune with Kensington and Chelsea performing worst at 1.3 per cent and Waltham Forest, on the capital's unfashionable north-eastern outskirts, at 16 per cent.

If anyone needs evidence as to where the financial aftershock of 11 September was felt most acutely, they only need look at the percentage increases at the top end of the market in London. This year there has been a reversal of fortune with Kensington and Chelsea performing worst at 1.3 per cent and Waltham Forest, on the capital's unfashionable north-eastern outskirts, at 16 per cent.

Hometrack's monthly survey shows that the London boroughs with values below the average are the top performers, with the high-value boroughs the worst. But it is easy to forget that the slowdown at the top began well before the attacks on New York and Washington, while low mortgage rates have fuelled the market elsewhere.

As for 2002, employment growth is projected to be much weaker in the next two years and this is likely to have a drag on house growth in the short term, according to FPDSavills Research, who do not expect to see outright house price falls. While they forecast UK mainstream growth will total over 5 per cent next year, the complex housing market of hot and cold spots looks here to stay, with the regions furthest from London and the south-east faring best.

Two regional hotspots

And what a different story away from the southeast. Here, buyers have been making the most of low interest rates, either to get a foot on the housing ladder or as a chance to trade upwards. In two property hotspots, as identified by Bradford & Bingley estate agents, values continued to increase throughout the year. In Ivybridge, Devon – a few miles from Plymouth and with good transport links – there has been a 20 per cent increase. A four-bedroom, detached house, built in 1972 sold in April for £126,000 against an asking price of £130,000. Eight months later, a similar house, in an equally good area sold for £216,000 with an asking price of £220,000. It differed only in that it had a double garage.

At Bromborough, Wirral, a three-bedroom, semi-detached house, two years old, of which there are a number in the area, sold for £68,000 in the early spring. This month, an identical house opposite has just been sold for the asking price of £75,950 – a 12 per cent increase and a clear indication of the strength of the market at the lower end. Joanna Morville, the manager, said: "People were piling through the door. The full offer was made within 24 hours and there is a waiting list in case it falls through. Only a few houses are coming on the market between £60,000 and £80,000 and we need a lot more to meet demand."

The urban family house

What has been happening to a typical family home in what has been one of London's fastest growing areas? A four-bedroom house in Warriner Gardens, London SW11, a short stroll from Battersea Park, sold in July very close to the asking price of £710,000. Since the autumn, an identical house in the same road has been on the market at £680,000 and has so far failed to sell.

Where buyers have choice and are looking at properties that are not exceptional they are clearly showing caution. The aspirational buyer, so much in evidence over the past five years and accounting for 75 per cent of all purchasers, is keeping a nervous eye on the economy.

In the Battersea office of Douglas & Gordon, George Franks saw a slowdown following a "phenomenal spring". The picture is more one of realistic pricing than falling values. "We are not seeing ludicrous offers being accepted way below the asking price. The average mortgage is still only 30 per cent of a person's salary and last time the market collapsed it was more like 60 per cent."

In Oxford, William Kirkland of Cluttons says that vendors cannot expect to achieve the same premiums that they would have earlier this year. Good properties are still selling, but at reduced prices, and secondary properties are struggling to find buyers. "A case in point is a large Oxford townhouse which we brought to the market in June at a guide price of £1.9m, where at least five people were bidding at over £1.5m and the property sold at £1.8m. If it were for sale now, we would be struggling to achieve this and there would certainly be fewer bidders with over £1.5m to spend. In 2002 I would expect to see modest price rises of between 5 and 7 per cent."

The London apartment

The top of this market has been hard hit in recent months. An extreme example is an apartment that sold two years ago – off-plan – for £1.6m is currently on the market for £1.2m. While some developers at the end of their financial year are negotiating, those prime riverside blocks are holding their value well.

But elsewhere, a 10 per cent drop is not unusual, according to Ed Mead of Douglas & Gordon's Chelsea office. A two-bedroom, ground and basement flat in Draycott Place, SW3 sold in May for £465,000 while the sale for a similar one has just been agreed at £420,000. "It always takes sellers at least three months to accept the changes in the market. There is peer pressure to keep the prices up. But whereas six months ago, a buyer would have had three offers in him – low, upper and asking price – now he has only one and that is low. I think January will be crunch time and the situation may well get worse before it gets better."

Country homes

The London influence on the home counties has kept the prices high, with the effect being diluted by distance. Prices were close to the top of the market between April and June, with the average for a good family home without the frills of tennis court and pool around £725,000. At present, the values are closer to those of last winter. At Jackson-Stops & Staff, they have strong regional markets continuing despite the London downturn. In East Anglia, where the London-based buyer is a significant player, the fact that the mid to upper end of the market has held up so well is down to the strength of demand for good quality houses from local buyers, says Philip Gilbey from the Newmarket office.

The quintessential English country cottage is never out of favour, even in a year of flooding. A thatched Hampshire cottage with land and fishing sold in May through John D Wood for some £300,000 more than the asking price. It went for £1,050,000 only 18 months after selling for £500,000. But that was then. The cottage next door in Amport, far smaller but also picturesque, went on the market in September for £350,000, a price influenced by its neighbour, according to Matthew Hallett of John D Wood's Winchester office. It has just sold for £255,000.

Residential farm

Annus horribilis is an understatement for this sector. After foot and mouth was confirmed in February, the countryside came to a standstill and farms already struggling had to face the loss of their livestock. Only now are they beginning to restock.

Well before 2001, farmers who feared for the future had been selling up and realising their property assets. In the south east, 75 per cent of all sales are to residential buyers, says Mark McAndrew of Strutt & Parker's farms and estates division. Even though this part of the country escaped the disease, the start of the farm selling season was put on hold until the end of April. "Prices stopped going up in June and July. Now it takes longer to sell, but there is always demand for a house with a couple of hundred acres." A Sussex farmhouse with 500 acres is currently being sold for £1.5m.