Halifax figures for house prices and sales over past three years show north of England slumped more than south
The north-south housing divide is widening, with property sales in the south down by 42% over the past three years compared with 51% in the north, according to the Halifax. Across Britain, home sales dropped 47% since 2007, with 649,957 homes sold in England and Wales in 2010 compared with 1,222,402 the year before.
Britain is increasingly becoming a market of two halves. Over the past three years, the town with the highest fall in house prices is Newcastle, down 28.8%. But in Barnstaple, Devon, house prices increased by 4.2%. The trend continued during the past year, with big annual house price gains in Reading (10.2%), Dartford (9.2%), Brighton (9.1%) and Cheltenham (9%), compared with large price drops in Blackburn (9.5%), Keighley (9%), Castleford (8.2%) and Nuneaton (7.9%).
Martin Ellis, Halifax housing economist, said: "There is a north-south divide coming through clearly both in house prices and in sales. The north is suffering and the south is doing relatively well – if relative is the right phrase in the current environment. The market as a whole has been affected by the financial crisis and recession, but the north has been hit the hardest and households have really been impacted by a lack of growth and rises in unemployment. Economic activity has been better in the south."
London in particular seems immune to house price falls and has also bucked the trend for low numbers of sales, helped by overseas investment and City bonuses. Prices in the north London borough of Islington increased by 9.7% over the past year. House sales also increased strongly in the capital, up 22% overall in three years with Brent recording the largest increase, of 53%.
Richard Donnell, head of research at property analyst Hometrack, said: "Overseas investment is key, with an increase in international buyers meaning London can perform differently. For overseas investors, property in London is seen as a safe haven because it is easy to let out and London is an attractive, global city. I'm sure City bonuses will be playing a part too, because central London property performs in line with the world economy."
First-time buyers are seen as the engine of the housing market, without whom chains cannot start. But despite recent attempts by lenders and the government to make mortgages more accessible to first-time buyers, Lucian Cook, director of Savills Research, said house prices are now being driven by those who are cash rich. "The concentration of equity is a key factor in determining future growth potential. Our forecast is for a small decrease of 3% across the UK, before the market turns to positive growth of 1.5% next year, totalling 11.8% by 2015."
Robert Gardner, the chief economist at Nationwide Building Society, agreed that things were worse in the north, but said this could change if the government achieves a gradual rebalancing of the economy. "We expect manufacturing and exports to become more important over time and services and consumer spending less important," he said. "If this happens, we might see some regional effects with areas reliant on manufacturing doing better. The process will be gradual but it would see some areas of the country that are suffering today begin to improve."
Ed Stansfield of Capital Economics believes that prices have become skewed in London and the south-east. "If prices weren't sustainable in 2007 – and they are nearly back to those levels – why are they sustainable today?" he asks. "The demand for prime property in London from rich buyers and celebrities isn't enough to prop up the market in Walthamstow and Ealing."
House prices are notoriously volatile and the regional disparities coupled with a bewildering array of conflicting price indices in the past month point to an unstable market. But the annual figures, while still confusingly disparate, all indicate a downward trend. Halifax says prices dipped by 2.8% over the year to February 2011, while the Land Registry put the fall at 1.7% and Nationwide put it at 0.1%. Most independent observers acknowledge that the Land Registry and Department for Communities and Local Government figures are the most reliable, as they publish data, respectively, from actual registered transactions and completed transactions.
As for the future, the economists at Nationwide and Halifax expect a flat market in 2011, despite the threat of interest rate rises, the reality of public sector cuts, rising unemployment, real-term wage deflation, a lack of credit, and growth in mortgage arrears highlighted by Bank of England figures on Thursday.
"We hope the recovery in the economy will be under way this year, with rising employment and wage growth counteracting the effect of a rise in base rate and the public sector cuts," says Gardner. "We hope the housing market and the wider economy will be able to absorb a rise in the Bank base rate, but the Bank of England does not operate in a vacuum and might raise rates only when the economy is back on track."
Halifax's Ellis forecasts a quarter-point rise in the Bank base rate this year and "a little bit more coming through next year. Overall, this year we expect to see stagnating, slightly falling house prices, with a 2% fall in prices nationwide, with regional variations. Greater London and the south-east might see less of a fall but there could be a greater fall in the north."
Ed Stansfield at Capital Economics is more pessimistic, fully expecting a drop in prices: "The housing market is still over-valued by 15-20%. The only question is how fast and by how much they fall."
He continues: "The public sector spending cuts are only just getting underway and private companies will not be able to pick up the slack from the public sector. Consumer confidence remains very low, so demand for mortgage products is not going to go through the roof and mortgage defaults rising is a cause for concern. Lenders are commercial organisations and can't afford to absorb losses.
"The slightest thing – a modest rise in unemployment or a change in sentiment – could be enough to undermine house prices at current levels. House prices are only going one way – down."
A nation split by house prices
The problems of the housing market are clear in Burnley, Lancashire, where a down-at-heel two-bedroom terrace house is on the market for just £15,000 – less than the cost of an average family car. With some understatement, estate agent John Dinsdale says the house, which is unstable and needs to be partly rebuilt, is in need of renovation.
But the house, on Pritchard Street, Rosehill, has a sitting room, kitchen, two bedrooms upstairs, a bathroom, a yard and even has some of its windows intact. It could go for even less than £15,000 if agents get the right offer.
Burnley has seen one of the steepest falls in house sales in the past three years and the former mill town is still feeling the effect of the recession.
Burnley councillor Howard Baker, who runs Falcon and Foxglove estate agents, said it was the town's abundance of empty homes that was dragging down property prices.
"There is good-quality low-cost housing in Burnley," he said. "It is out there, but there is also an awful lot of low-quality low-cost housing around. That's what brings the prices down."
The leader of Burnley council, Charlie Briggs, has called on the government to provide money for the town to improve its housing stock.
His call came after ministers last year axed Housing Market Renewal, which had provided the town with £15million a year to demolish and replace its outdated housing stock.
Land Registry data shows that the £15,000 house is exceptionally good value for money, with the last three properties selling for between £54,000 and £55,000.
Dinsdale said the front wall of the house was unstable and needed rebuilding, while the inside needed a complete refurbishment and the property is in "a very poor state of repair in a poor area," adding that it has been broken into "quite a few times."
"It will certainly need a lot of money spent on it to bring it up to scratch."
The house may appeal to builders or investors, he added.
The sale description says: "Located in a mature well established area off St Matthew Street, the property is within a few minutes' walk of Burnley town centre.
"Structural movement / cracks are evident to the front elevation and the interior has been vandalised. The property is in need of comprehensive repair / renovation - hence the modest asking price."
Residents said they believed the price was indicative of the house, not the area.
Martin Baines, who lives on the street, said: "There are worse areas than this in Burnley, never mind any other towns.
"I am not sure why the house is so cheap but maybe it is not in great condition."
Elizabeth Groves, another resident, said: "There are a few boarded-up houses on the street but there are also some well kept homes and there are people who care about the area.
"I've never had any problems living here. Perhaps it is a little rough but I think there are worse places to be."
The contrast 170 miles south-east in Reading could hardly be greater. House sales have risen in the past three years. It isthe same people driving the housing market in London who are pushing prices up in Reading According to Sara Batting, founder of an estate agency of the same name, it is not first-time buyers but those with equity in a property who are driving up sales.
Batting's agency specialises in bigger properties — the type preferred by executives shipped in by the likes of BG and Thames Water — both of which have large offices in the town. They are, says Batting, "the kind of people who push prices up because their need to relocate is usually urgent".
Over the last year house prices here appreciated by 10.2% – the largest rise of any town across England and Wales.
Reading is home to several employers such as ING Direct, Microsoft, Oracle, SAS International and Rentokil Initial. The town is just 25 minutes from London by train. That combined with a strong offering of schools and its proximity to Oxford, and Henley has turned it into a magnet for middle class families aspiring to better standard of living than they could achieve in the capital. Helen Carter and Jill Insley