The UK housing market: why the North-South divide is narrowing
If you’re an investor or owner who keeps a keen eye on the UK housing market, or maybe even an aspiring first time buyer, then you’re probably aware of the near constant commentary surrounding the UK housing market. The rise in property prices all across the UK has looked unstoppable for many years, and the difficulties facing first time buyers, as they attempt to take that definitive step to get on the property ladder, are now well-documented.
But, if you’re someone who is about to make a major investment or buying decision in the next year or so, now is probably a good time to take stock and evaluate, as all the signs indicate that the property trends which have continued to define the market over the last ten years are finally slipping into reverse.
For home buyers and investors, it’s all about location, location, location, and one of the most interesting developments in the past eighteen months is the sudden narrowing of the price gap between London and the South East, and the other areas of the country.
The slow-down, and potential fall in London property prices could have some wider transformative effects on the wider UK economy. So, let’s have a look at this new development in more detail.
UK Property prices: a breakdown
There are a few trends across the wider property market which worth noting for investors and buyers alike.
- There has been a slowdown, and fall, in London’s property prices, with prices falling as much as 15% in the past two years.
- In London, this is the steepest rate of annual decline since the aftermath of the last financial crisis in 2009.
- House prices are falling in two fifths of Greater London boroughs, and where there is growth, it is now at 1%, as opposed to the average 4.3% growth in the capital
- Meanwhile the north-west of England has replaced London as the fastest growing housing market in the UK: Merseyside has seen property growth rates of 8%, Greater Manchester is growing by 4%, and Warrington has seen property prices increase by over 10%.
- Overall, UK house price growth has slowed to 1.8%, with monthly falls in prices slowing the average annual growth rate. For the first time in many years, wage growth is outstripping house price growth.
What’s causing the house price slowdown in London?
If you ask anyone about the sudden slowdown and drop in London house prices, they will invariably give you the same answer – Brexit. The uncertainty caused by the UK’s decision to leave the EU in June 2016 has had an undeniable cooling effect on London’s property prices. There is still much which is unknown about the UK’s potential status outside the European Union, and this has had a knock-on effect in London, which is massive hub of property investment. There is also a lot of negative sentiment surrounding the Brexit process in the capital, meaning that homeowners are less likely to take that definitive step to sell up and buy somewhere else. This, in turn, ultimately drives down transactions. There are, however, other contributory reasons for the slow down.
- Mortgage problems – new mortgage regulations are designed to ensure that people do not borrow beyond their means; however in London this means that deposits are kept very high.
- High end properties – the number of high end properties in boroughs such as Kensington and Chelsea has meant that property falls have, rather unsurprisingly, been starker. For example, properties the City of London have crashed by as much as 18.2%.
In general, there is also a more general problem with affordability and supply in London which makes the South-East more of a bubble. Ironically, the increase of housing supply in the capital has also contributed towards pushing down prices.
The story in the North-West is slightly different.
What’s causing the property growth in the North?
In contrast with the South, the North-West’s property market is seeing healthy growth. Whilst demand is still outstripping supply, the North’s hosuing market is looking healthier due to expected GDP growth. It’s also arguable that the North West property market is not an asset bubble in quite the same way London has been. There are a few local variables which may explain the growth.
- Smaller cities like Blackburn have a supply of good quality affordable housing which aspiring homeowners and young families are keen to buy and live in.
- Larger cities and urban areas like Manchester and Liverpool are offering a good return on investment. In particular, Manchester is becoming a hot spot for a build-to-rent market, which couples with a growth in the construction and professional services sector.
It’s worth bearing in mind that the London market isn’t likely to knocked off its prime spot any time soon, and the current slowdown is probably just that – a slowdown, and not a complete fall. But the narrowing of the North-South divide is an important step-change, and may be a small step in reversing the wider trend of regional inequality across the UK.
Meanwhile, the increased growth in the North-West is synonymous with a new wave of investment and regeneration, which is helping to re-balance the UK economy away from London. Whilst there is still a lot of work to be done on that score, this is certainly a promising sign.
Guest blog by Attwood Property Services, a family run business providing block management service across the South East of England.