North and South – A Narrowing Gap?

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Bridging Finance Solutions has been funding property development, conversions and refurbishments in the North for the past decade. A geographically specific market, predications suggest that house prices in the North of England will rise significantly during the next five years and the firm is therefore expecting a particularly buoyant market. BFS Managing Director, Steve Barber reflects on the narrowing gap between North and South and what this means for house buyers and sellers:

“The North has always been a huge market for us and it is an area that we draw around 70% of our business from. Traditionally there has been less appetite from financial institutions to lend in the North as the higher capital returns can obviously be realised in the South East where house prices have reached stratospheric levels. The North has historically delivered higher yield based investments, but can the North expect to see both in the medium term ?

“As we have seen over the years, the South East dictates the pace and direction of the market place and the rest of the country follows suit thereafter. We are undoubtedly seeing the ripple effect of the changes to the Southern markers and house prices are increasing in the North.

A recent report by a leading Property Consultancy shows that during the past 10 years, house prices has grown by some 7% in the North West, 48% in the South East and 105% in inner London reflecting the North lagging behind and the ripple effect yet to be fully reflected in capital valuations. 2015 annual house prices show an increase of 6.6% in the North West, 12.3% in the South East and 8.6% in inner London which clearly demonstrates that in the coming 3-5 years where the value increases will be seen after the slowdown post implementation of MMR.

London in particular is stretched in terms of affordability with first time buyers seeing a 10% increase to 3.93 loan to income ratio from 2007 to Q1 2016  and a 17% increase for Home Movers to 3.83 for the same period. By contrast the rest of the country has seen increases of 2% to 3.46 times and 6% to 3.21 times respectively.

Steve commented “The northern property market has always been less dependent on international buyers and funding and therefore Brexit, I believe, will have far less impact, suggesting that the North will become a more appealing and stable area of the country to invest in. Homeowners are undoubtedly borrowing less after Brexit with potential buyers unsure how an unstable market will affect their investment long term and it is anticipated that the ‘Brexit Effect’ will have less impact in the North. Nevertheless, buyer sentiment will be fragile and principally based on needs based buyers and opportunistic investors.”

Of course, it may be argued that we have yet to see the full impact of Brexit with Nationwide reporting a 5.6% increase in national values in 2016 and Halifax reporting 6.8%. Other research, shows less demand for new enquiries during the past two years coinciding with a drop in new instructions therefore we are experiencing less demand and fewer homes on the market. Only time will tell in respect of the regional impacts.

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