Assetz® News - Staying strong

Staying strong

11th August 2008 |

The last few years have seen three areas of the UK moving ahead of the pack in terms of house price growth; London and the south-east, Scotland and Northern Ireland. The reasons in each case were different, but two out of three are tipped to remain the best places in Britain for investment in the next few years.

Northern Ireland, of course, has seen falls in prices of late because its market, boosted by the peace dividend as it was, also depended in part on purchases from its southern neighbour. But as the Celtic Tiger has seen its own property go from boom to bust, this factor has been eliminated.

The other two areas, however, have peculiar characteristics that remain in place whether the market is doing well (which it has for several years until late in 2007), or is doing badly, according to Knight Frank spokesman Liam Bailey.

In Scotland's case, this is because it has its own unique characteristics that do not fit with the national market: "The safest place is probably Scotland; prices are marginally still increasing there. This market is always more resilient because you do not see the same boom and bust conditions here that you get in the rest of the UK."

While tipping everywhere outside Scotland to see prices fall in the near future, the English experience will be far from uniform, Mr Bailey suggested. He said the north and midlands will be worst off because these are the regions where "lower income earners have stretched themselves to get onto the ladder" the most.

London and the south-east - which are two separate regions but in this context can be considered one because of the proximity of the latter to the capital as commuter territory - have their own particular reason to keep on top, Mr Bailey stated, predicting: "The strongest markets over the next few years will be London and the south-east due to the weight of demand for accommodation in these locations."

So for investors it seems that two areas at opposite ends of the country will offer the best prospects in the near future as Britain faces up to a much less benign set of economic circumstances. But such areas may also, because of this strength, be the best places to be when the economy recovers.

Of course, predictions vary about the severity of the UK downturn, some saying it may not be too bad and shortlived, while others see the dark days of recession ahead. One who certainly has forecast negative growth is Roger Bootle, economic advisor to Deloitte. He told the Business Desk today that Britain may already be going into a recession. Any interest rate cuts will be too late to stop that, but these, he predicted, are likely to have to be substantial.

He stated: "Interest rates will, eventually, have to fall very far to lift the UK economy out of its current malaise." His tip was for the base rate to plummet to 3.5 per cent or maybe lower still next year, meaning at least five 0.25 per cent trimmings of the rate.

While the north and midlands may not be in the best position to bounce back, those markets that remain strong, bolstered by a such a reduction in the cost of borrowing, could then become the areas that do most to lead the recovery. It could well be that these geographical factors are high on the list of considerations for investors looking towards the next upturn in the market's fortunes.