Rural retreats come with a hefty price tag

Despite lower prices and interest rates, a shortage of homes still makes buying in the country tough. But, says Alessia Horwich, it could be now or never...
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With rural property prices falling by 13 per cent in the past year, it is tempting for urbanites to think now is the time to seek a bargain in the country. The combination of low interest rates and a dwindling supply could mean that, for some people, buying in the country is now or never.

But the Halifax rural house price index, released this month, showed that the price drop was significantly less than in urban areas, where prices have fallen by 18 per cent, on average. The difference is largely due to the types of property in both areas. House prices in cities have been pushed down by the oversupply of new-build apartments. In rural areas, properties tend to be built on a smaller scale, producing more desirable individual houses. "Rural property is not as easy to build as developments in city suburbs, which has helped underpin prices," says Miles Shipside, the commercial director at online estate agent Country properties are always unique and harder to replicate so tend to hold their value better."

Despite the more shallow dip in prices, for those who want to relocate to the country, it could be significantly cheaper to do so now, before the economy recovers. The possibility for development in the countryside is limited. Many remote areas aren't desirable locations for development, while others are protected by local planning policies. Even if property construction does go ahead, many rural councils only grant planning permission to developers who sell to locals. As a result, the supply of housing in rural areas, especially for outside buyers, is dwindling. "The percentage that rural properties make up of available housing stock is falling," says Shipside. "Restrictive planning policies mean countryside properties aren't going to get more plentiful." With a growing population, tighter supply inevitably means higher prices, meaning countryphiles should try to find something now while prices are at least slightly reduced.

If you have a sizeable deposit, buying now will also let you take advantage of low interest rates. Several fixed-rate deals rose in cost last week, despite the base rate remaining static. There are deals available now for as little as 1.99 per cent (a two-year discount mortgage from HSBC) and 1.98 per cent (a one-year tracker from the Woolwich). Finance is still tight, but figures released last week by the Council of Mortgage Lenders show that the number of mortgages granted has jumped by 19 per cent from July 2008. As finance becomes more widely available, competition will push up house prices across the country.

The Halifax survey shows that prices in rural areas in 2009 are, on average, slightly more than six times average gross annual salary in the countryside, which is the lowest ratio since 2002. However, it remains notoriously difficult to buy your first home in a rural area. According to the Halifax, in urban local authorities, first-time buyers make up 44 per cent of all purchases with a mortgage, but in the countryside, it's just 27 per cent. "The affordability of buying in the country for first-time buyers has been an issue for the last few years and it remains one," says Martin Ellis, an economist for the Halifax. "Falling prices do put it in the reach of more first-timers and conditions have improved somewhat, but they remain difficult."

With fewer rural homes in the first-timer price bracket it is more of a challenge to find a property that suits and is still within commuting distance. Often the cheaper the property the more likely it is to be in a less accessible location. Plus, for younger buyers who are more vulnerable to redundancy, a move away from the majority of jobs in the cities during a recession could be imprudent. First-time buyers looking for property in the country will still be subject to lenders' rigid affordability criteria. To really profit from low interest rates, they will need a deposit of at least 20 per cent. As the economy recovers and lending relaxes, smaller deposits could become more acceptable.

For second-home buyers, improving affordability offers opportunities to pick up a bargain, and if you intend to buy solely as a second or holiday home, finance should be accessible. However, as with any other mortgages, lenders are looking for sizeable deposits. "Don't be surprised if you are expected to have at least 25 per cent, and get a slightly more cautious reaction lending on a second home," says David Hollingworth, a spokesman for broker London & Country. If you intend to rent the property, lenders will not be keen. "If it's going to be used as a holiday let, you'll find it very difficult to get finance," he says. "It was always tricky; now it's verging on impossible."

Whether it is wiser to go rural now, or wait a year, is impossible to predict. As Mr Ellis says, "It's still too early to judge what will happen in the next year. The best we can hope for is that house prices will stablilise."

If prices fall again, it is likely the fall will not be as steep in rural areas as in urban ones. Many buyers relocating to the country are seeking a different quality of life. This quality comes at a premium. Whether you embark on it now or put it off in the hope that prices fall slightly, a move to the countryside is always going to cost you.