Assetz® News - London and Scotland tipped to lead recovery

London and Scotland tipped to lead recovery

21st August 2008 |

While many are looking negatively at the UK property market in the light of the credit crunch, falling house prices, the economic downturn and the constraints placed on the ability of the Bank of England to cut the base rate by rising inflation, others are taking a longer term view of the property market.

After all, some will be quick to point out, downturns do not last forever. The early 1990s, seen as a byword for doom and gloom, gave way in time to a decade of growth and higher house prices, turning bricks and mortar from negative equity into sought-after investments.

Moreover, some can see positive factors emerging now and other see them coming soon. In the former case there is the almost daily news of cuts to mortgages as swap rates fall. In the latter there is the expectation among many economists after yesterday that interest rate cuts can start before the end of this year.

Jonathan Loynes of Capital Economics stated that while David Blanchflower's doveish position on interest rates is likely to remain his own in the near future, that this will alter as inflation peaks and the economy slows, concluding: "We still think rates could be falling by year-end and will eventually drop much further than the markets expect." For similar reasons, Lehman Brothers economist Peter Newland told Interactive Investor that people should look out for "the first of a string of rate cuts in November".

Such factors may help the UK economy and housing market to bounce back, though by how much and how soon is a question experts will argue over. The other question is where the recovery will happen first.

A study by estate agency Savills suggest that London and Scotland, the biggest boom regions in Britain over the last few years, will again be the places to go by 2012. It argued that by this time the two localities at either end of the country will have recovered to 2007 levels whereas those in between will not. The projection for growth between 2008 and 2020 for Scotland was 47 per cent, propertywire reports.

Commenting on the research, head of residential research at Savills Yolande Barnes said: "This property market downturn has affected virtually all property sectors and UK regions simultaneously but regions will vary far more when the upturn comes." She suggested that property price rises will be most driven in areas with "higher levels of housing market equity and stronger household purchasing power such as London, the south-east and Scotland".

That is not the whole story, of course. As the Birmingham Post pointed out, the west Midlands - one of the areas currently suffering most - may not have the strongest recovery but will enjoy a better one than the north-east and north-west, returning to 2007 levels a year sooner.

Of course, these are regional figures and the local situation may differ from place to place. What happens in Birmingham may be different to what occurs in Worcester and what happens in Manchester may be at variance from Crewe's fortunes. In London, the added factor of the Olympics and the effect that has on the development of the East End may also be significant. Whatever the regional projections, those investing in property may want to look closely at how each area bounces back.