The north-south divide in Britain's housing market looks set to widen further as more evidence emerges that London prices are rising strongly again. But estate agents in other parts of the country are reporting an Easter revival of interest from buyers hoping the ripple will spread from the capital.
Easter remains the traditional start to the property-purchasing season and the sunshine of the past week has seen a surge of potential buyers, according to agents.
But the market is split between people fearing a tighter economic squeeze and those discounting the gloom as it becomes clearer which jobs are at risk. The likely delay in raising mortgage rates and better news on unemployment, inflation and retail sales are cited by agents for the turn in demand.
Most trends in the British housing market start in London; while house prices in all other regions of England fell in the first quarter of this year, the capital's selling prices rose, according to the Halifax bank. Average London prices are still 15 per cent below their 2007 peak, but values in an increasing number of boroughs have set new records.
In the rest of Britain, prices started rising in 2009, after the financial crisis, but peaked last April and have fallen since. But London prices rose by 6.1 per cent last year, with a 5.5 per cent rise in the South-east. The capital's strength is reflected in a poll of members by the Royal Institution of Chartered Surveyors, whose housing expert, Ian Perry, said: "London was the only area of the country to report a rise in prices, demonstrating that the capital is still operating under different market conditions to the rest of the country."
The capital's market has been fuelled by City bonuses – which have remained high even if some are deferred – and overseas buyers. A Ukrainian has paid £136m for a flat in the prime One Hyde Park development, it was revealed last week.
However, London's relatively low unemployment has supported demand and rising salaries are making property more affordable, allowing prices to rise while they fall elsewhere.
Robert Gardner, Nationwide building society's chief economist, said prices in all northern regions have fallen since 2006 while all southern regions other than East Anglia saw increases. "This has resulted in a significant widening in the north-south price divide," he said. "Average prices in the South are now 65 per cent higher than those in the North, compared with 44 per cent five years ago."
Dennis Turner, the chief UK economist at HSBC, admits to being confused by the market. It is disappointingly sluggish, he told a conference last week. But while the ratio of house prices to earnings suggests property is still "hopelessly overvalued", he said affordability is more important.
Londoners were paying 6.41 times their annual incomes in 2007 but higher pay and lower prices mean the figure is now 4.68 – the lowest multiple since 1982. Across the country, affordability has returned to levels not seen for more than 25 years.
Some London owners are seeking properties outside the capital. The Office for National Statistics revealed last week that when the property market peaked, 13 per cent of people in their fifties and sixties owned a second home worth an average £130,000 after offsetting mortgages.
Finance remains a problem for first-time buyers, who account for a third of purchases. Paul Hunt, the managing director of Phoebus Software, warns that borrowing remains low. "This is the second lowest level of March lending activity in a decade; when public-sector cuts begin to boost unemployment, we could see lenders get even more nervous," he said.
But the market is mixed. Prices in Wales have shown some recovery, as have those in Yorkshire and Humberside, despite falls in the North-west. In the North, prices jumped nearly 10 per cent this year.Reuse content