• Tue. Jun 25th, 2024

North East Connected

Hopping Across The North East From Hub To Hub

Property Prices: London’s Loss Is The North’s Gain

Seasons will change, governments will come and go, but London property prices will always be on the rise. At least, that’s been the case for nearly the past four decades. But this status quo is coming to an end. No, we’re not entering a permanent winter, and it’s unlikely this current government will last forever. Instead, London property prices have begun to decline.

According to a report published in the Evening Standard, the London property market is set to stagnate over the next two years, before growing again at a crawl in 2019 and 2020. Estate agents JLL blame this on “low pay increases, interest rate hikes, and, in London, less demand from Europeans after Brexit.”

This amalgamation of factors does not bode well for anywhere in the country. Yet areas outside the capital need not worry. For as London’s property growth slows down, almost everywhere else in England is seeing house prices rise. The North East of England, in particular, is set for its own property boom in the coming years. So much so that investors are being advised to turn away from the capital.

Why will the North outperform London?

Over the past decade, London house prices have risen by an astonishing 70%, five times faster than the British average. With an average house price of £479,000 in 2017, better-off Londoners are struggling to afford houses.

With its busy roads and sheer vastness, even the process of moving is more difficult and expensive in London than in the rest of the UK, say AnyVan in their resource for removals in London. It’s not just the price of removals either. Other hidden costs of moving, such as stamp duty or conveyancing fees, are often pegged to house prices, meaning these too are far higher in the capital. Because of this, many young buyers are leaving London in search of more affordable homes.

By most accounts, the best places to find affordably-priced housing are cities in the North West. In Liverpool and Manchester, around 80% of properties are still considered affordable. With demand increasing in these areas, property prices, too, will no doubt rise.

Also helping the North outstrip London is its current growth rate. The North West is growing at an average of 6.5% per year, while London properties are growing at just 2.5% — just over one third of the North West rate. Analysts from PwC point out that August’s 2.7% inflation rate means house prices in London actually declined in real terms this year on average.

Going forward, property prices in the North West are expected to grow by 18.1% by 2020, with the North East following closely behind at 17.6%. London, on the other hand, is set to see a fall of 1.5% this year, followed by a 2% fall in 2018, and stagnation in 2019.

Will London recover?

Despite the sensational headlines, there is nothing to indicate that London’s property market is entering permanent decline and will never recover. Some have predicted that greater political and economic certainty will come after the Brexit process, helping stabilise the market.

London is expected to reach 2% recovery in 2020. Unfortunately for the city, this may not work to its advantage. The irony is that increasing property prices are going to continue driving first time buyers out of London, towards competing markets in the North. which will see sellers in the south see an increase in the time it takes to sell their property.

By some accounts, London’s average house price in 2020 will have climbed to £500,000. If pay rises and inflation remain at their current rates, this will place home ownership in the capital out of reach of the vast majority of buyers.

Is the “golden age” of booming house prices over?

It’s possible that London properties have spent the past several decades growing in value too much for their own good. The growth rates seemed too good to be true, and it may emerge that they indeed were.

In London, at least, the so-called ‘golden age’ boom may be over. But it’s not out of the question to suggest that the rest of the country may be in for a golden age of its own. The average house price in the North East, for example, is forecasted to reach £149,000 in 2022. This is a 17.6% increase on its 2017 average of £127,000. Compared to London’s half a million pounds, this is a far more enticing prospect for first time buyers. And with growth rates only on the rise, investors are likely to take note too.

For the sake of the North, let’s hope that this growth stays at sustainable levels. In fact, it might be better for the North to steer clear of a London-style ‘golden age’, in order to avoid a similar fate.