North-South house price divide widening

The North-South property divide has seemingly been in place forever. The gap varies over time – closing a little as the northern metropolitan cities play catch up and then widens again as the South emerges from of the UK’s worst recessions.

On all measures that count what is going on in the London market. Last month property watchers saw Rightmove announce that asking prices in Hammersmith and Fulham, increased by 10% in just four weeks.

Annual double-digit property price inflation within the M25, and increasingly outside it, is becoming the expected, and all this is happening off the back of an economy which is stumbling out of recession, rather than a boom.

Henry Pryor, a property market commentator, says the key factor is the large amount of cash buyers: “I have calculated that in the first half of this year 54% of property purchasers in London were cash buyers. This means there is no chance for first-time buyers and anyone who has to sell their home before buying another – the normal way we do things in this country – might as well stay at home, they can forget it.” 

Foreigner buyers are behind this. Peter Mackie, a senior partner at the independent buying agents Property Vision, sums it up: “An ever-increasing variety of nationalities viewing London as their home for business and educational reasons appear to replace those domestic owners who are bowing out.”

Therefore implying that even larger areas of London – Britons are cashing in by selling to foreign buyers, and this in turn is pushing up prices in the areas they are moving to. Hence, the capital is starting to see less British faces and is becoming colonised by wealthy elites from overseas.

For the first time in the UK there is a complete separation between house prices and the ‘real’ economy. And it is the cash flowing in from overseas that really counts. But as Mr Pryor observes, the UK property market is “a patchwork quilt, you can see huge variety in market conditions from one parish to the next.” London and increasingly the capital’s overspill areas are not a clear representation of the UK property market: “Of the 840,000 homes currently on the market fewer than 2000,000 will be sold by Christmas – 640,000 will still be up for sale, a third of homes have had their house prices reduced more than once,” he says.

In contrast, areas such as Wales and Northern Ireland are deeply depressed. Some parts of Scotland and the big northern metropolitan centres are seeing transactions up – still barely half 2007 levels – and some limited price rises. Nicholas Ayre, Managing Director of Home buying agency Home Fusion, says: “We are starting to see house price growth in other parts of the country. This will balance things out a bit but it will never be anything like the growth in the capital. Demand for property is much greater there.” But others are less optimistic about the price divide and its economic effects, suggesting a political brain drain from the capital.

“We could see increasing numbers of highly skilled people leaving London because they can no longer afford to live here and this will surely have an impact, particularly in the public sector,” says James Hyman, the head of residential agency at Cluttons. Whereas Mr Pryor points out the property market in the North and West, whilst nearly collapsed altogether, at least reflects economic reality. “There are still property chains in these areas which you aren’t seeing in parts of the capital because of the huge number of cash buyers.

“People can move around for work and don’t face the stark reality of once selling having to move completely out of the area they live in.” So the North-South divide story circa 2013 is very different – and although the south is doing well, it may also be losing out.

If you are moving house, or looking to expand your portfolio, make sure you get comprehensive home insurance from Discount Landlord. 

Gaurav Ahluwalia