Nationally asking prices increased by 2.8% but this masks two tier UK property market with prices up 4.7% to set new records in the south while in the north they have decreased by 0.7% to levels last seen over six years ago in May 2005.
Average property prices in the south are now at £336,743, more than double those in the north at £164,347.
Demand in London has been boosted by cash rich buyers with large deposits who are benefiting from cheap mortgage rates. Rightmove said that prices in the city are also being supported as Europe’s debt crisis encourages investors to seek less risky assets.
Asking prices in Kensington and Chelsea, London’s most expensive district, rose 6.6% on the month, Rightmove said. The average price in the area was £1.92 million. In London all 32 boroughs saw prices rise in October.
The number of homes being put on sale in the city during the month dropped 14% to 15,927 compared with October 2010, and Rightmove said a shortage of properties for sale is supporting values. ‘That is likely to be one of the key factors behind this month’s new sellers pitching their asking prices at an all time high,’ said Rightmove director Miles Shipside.
‘Wider access to mortgages and rising asking prices are early signs of increasing demand, giving home owners some grounds for hope of a market recovery. However, the reality is that there is further evidence of the two tier twist which is dogging the return to more widespread liquidity in the housing market.
‘While those in the affluent south may have cause to celebrate their prices being well up on this time last year, prices in the north continue to go backwards, leaving the widest price gap ever. For the average asking price of a property in the south you could now buy two average properties in the north and still have enough change left to buy new carpets and curtains,’ he explained.
The south’s ability to perform better despite the continuing global financial crisis and resultant credit squeeze is further highlighted by property coming to the market at all-time price highs in both the London and South East regions. London’s £450,210 is 2.6% higher than the previous record set in June this year, while the £317,055 seen in the South East is 0.2% up on the previous high in May 2008.
‘Existing home owners in the highest priced regions are seeing the value of their bricks and mortar increase even further, though it is at the expense of buyers who are faced with the highest ever asking prices,’ said Shipside.
‘Those trading up will benefit from already being on the housing ladder, though the gap to trade up to the next rung is a bigger financial leap when prices rise like this and desirable homes are in short supply. Those who are not property owners, such as first time buyers or those taking an ownership break in the rented sector, will either have to spend more or compromise on what they can afford,’ he added.
Compared to the beginning of the credit crunch four years ago, prices of properties coming to market have risen by 5.4% in the south but fallen by 9.6% in the north. In the last year, sellers coming to the market in the north have on average reduced their asking prices by 2.6%, while those in the south have felt able to put them up by 3.9%.
Price decreases usually result when negative sentiment, influenced by uncertainty around employment and tightening of finances, rises. Of the seven UK regions with the highest unemployment levels six are in the north, so employment concerns, especially in the public sector, will be exerting downwards pressure on prices and activity in many northern areas. This will be exacerbated by lenders favouring buyers with higher deposits, where the less affluent north also fares poorly.
‘There is quite a simple formula to generate activity in the housing market, and access to finance through the ability to raise a substantial deposit and a secure job to fund repayments are the key variables. If prices are perceived to be rising then buyers are afraid that their dream home could move out of their reach unless they act quickly. These drivers of higher volumes of transactions and more buoyant conditions are more prevalent in the south,’ said Shipside.
With mortgage approvals recovering to levels similar to two years ago, it seems that owners in London are enjoying the biggest growth in equity and should be feeling positive about trading up. However, there are signs that the distance to the next rung of the ladder may be getting too high for some in the capital as the number of new sellers coming to market is 13.9% down compared to this time last year.
‘Low rate mortgage deals will only benefit those with the requisite high deposits, and at the moment the best equity growth has been seen in the London market. With record prices in the capital, some will be priced out of the best areas and will either have to stay put or look for value further afield. lf they are looking to move to the north of the country, the growing price gap will let them buy a lot more house for their money,’ added Shipside.
