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Our trends in the north

27th October 2008 | back to article listings BACK    print this article PRINT

In the current climate of banking rescues, falling interest rates and recent economic news suggesting recession could be imminent, most would find it difficult to be optimistic about a short-term recovery in the UK property market.

However, most are agreed, recover it will sooner or later. The questions are when, where and how much prices will fall first.

The Centre for Economics and Business Research (CEBR) has just produced its own report on the subject, suggesting that there will be a 25 per cent drop in process between the peak period of 2007 and the end of 2009. This, it has suggested, will take place despite the recent government action to help the banks helping to ease the mortgage financing situation and the base rate of interest falling as low as two per cent next year. Without such actions, of course, a far worse situation might be in the offing.

Such a report certainly appears gloomy enough, even if it does promise better times ahead from 2010. As late as 2012 the CEBR expects the average house price to be under 2007 levels. But this may not be the full picture.

One important consideration is the issue of regional variation. In recent years the trend has been for London and the south-east, Scotland and Northern Ireland to see the greatest price increases. Now, according to property firm Knight Frank, the north could lead the recovery in values.

The reasoning behind this is that the firm's study of the north has shown that the trend for house prices to fall began much earlier than elsewhere. As head of development research John Neale put it, this happened "as much as a year before prices began falling in London".

With Knight Frank expecting prices to drop 30 per cent before the correction is done and they bottom out, the study noted that some parts of the north have already dipped by as much as 25 per cent, meaning the bottom will be reached sooner - and hence the recovery will begin earlier - than elsewhere.

The company expect there will be a problem for some buyers because prices could soar with constructors also scaling back their work sooner than other regions, meaning a pronounced shortage could be a key concern. However, in the midst of all this the report also indicates that the rentals market is doing very nicely out of the current situation, booming as the number of sales stays low and producing yields that can exceed 7.5 per cent. The value of this investment will, Knight Frank suggests, help limit price falls in the next few months.

So while some may wait for the north to start the rebound in prices, those involved in the property investment sector for rental purposes can enjoy some good prospects to make hay while the clouds loom.

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