North or South: just where is the grass greenest?

As prices falter in the Home Counties, Clare Francis asks what's really going on in the UK housing market

Sunday 04 May 2003 00:00
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First-time buyers are putting off taking their first step on the property ladder out of fear and confusion about the state of the housing market, according to research from Skipton Building Society.

Conflicting reports from market commentators are not helping the situation. In its latest survey, published last Monday, property website Hometrack revealed that house prices fell by an average of 0.1 per cent in April. Hometrack concludes that the housing boom is over.

But two different pictures are presented by Nationwide and Halifax in their monthly property indices, also released last week. Nationwide reported that house prices remained stagnant in April, while the Halifax figures showed the average house price increasing by 0.4 per cent. So what's really going on?

The key thing to remember is that it's hard to obtain an accurate picture by looking at national figures, as the state of the housing market varies hugely even within one town or city, let alone across the whole country.

What is clear is that there is currently a North-South divide, with the North experiencing a boom while the market has cooled in the South – a reversal of the situation a couple of years ago.

This slowdown in the South had been expected because prices there have increased at an unsustainable rate and, in certain areas, property values have fallen from their peak last summer. Hometrack reports that prices fell by 0.9 per cent in Surrey last month and by 0.8 per cent in Berkshire. Since March, the London borough of Dagenham and Barking has seen prices drop by 0.8 per cent, while there were falls of 0.7 per cent in Kensington and Chelsea, and 0.5 per cent in Merton and Camden. But industry experts stress this does not mean that we are on the verge of a full-scale collapse akin to that of the early 1990s.

"We think the market is still very well underpinned," says Martin Ellis, chief economist at the Halifax. "The labour market's still in good shape and interest rates are low, and could go even lower, so there's nothing around to alarm me that the market's about to crash – it's still on course for a gentle slowdown."

One of the big factors affecting the property market is that first-time buyers are becoming a rare species. Nationwide reports that their numbers dropped to 27,000 last month, a quarter fewer than the same time last year. Some people have simply been priced out of the market while others are waiting to see if prices fall in coming months. The danger is that they too may find they can't afford anything when they eventually come to buy, because even though the market is cooling, prices in most areas are still going up – albeit at a slower pace.

House prices are dependent on confidence, and figures show that this fell during the first few months of the year because of uncertainty surrounding the war with Iraq. Now that's over, the property market is picking up again.

Marc Goldberg, London sales director for estate agents Hamptons International, points out that there has already been a significant correction in London. At the upper end of the market, defined as properties in the £500,000-plus bracket, prices have fallen on average by 12 to 15 per cent since last August, but Mr Goldberg doesn't expect them to fall any further.

"The upper end has been pretty stagnant since August," says Mr Goldberg, "and while the market below £500,000 remained buoyant until the end of February, the war served as a catalyst to stagnate the market throughout March. But we're now seeing buyers return. There's a lot of pent-up demand – people who have sat on their hands for the last few months are realising there's a greater choice of property around, added to which, mortgage rates continue to be very competitive."

Bradford & Bingley also reports an upturn in the South in the past couple of weeks. "There's no evidence whatsoever that the market is about to crash," says Gary Verity, head of retail property services at Bradford & Bingley estate agents. "We're seeing properties at the top end of the market move again, which hasn't happened for a few months. Things have been pretty volatile but there are now some green shoots emerging."

However, the situation in the North and in Scotland is very different. "The South has always been more mercurial because of City bonuses," says Mr Verity. "You don't get them elsewhere." Consequently, the market in London and the South-east tends to behave quite erratically, while the pattern across the rest of the country is more like a flight of stairs – prices remain static for a while, then go up, then stall again. At the moment the North is experiencing a period of growth, and the housing market in Scotland is the most buoyant in the UK.

"Further north it's a different ball game," says Mr Verity. "Properties are selling within days, and Scotland is definitely the busiest of all the areas."

While fears of a slump seem unfounded, the rate of growth is expected to be slower this year than in the past few years, with Nationwide predicting a 10 per cent rise by December.

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