North vs. south: the real housing market winners

England's housing market is so often a tale of two regions: the north and the south. But who are the real winners? Robert Powell patches together the figures in an attempt to find out.

Three words that will crop up in most housing and mortgage surveys: ‘north’, ‘south’ and ‘divide’.

Whether it's average prices, repayment stats or rental rates, England boasts an ever-widening housing crevice between its two poles. But, to ask an almost answerable question, which end of the country is in better shape property wise?

First-time buyers

It’s been a rough few years for first-time buyers. A housing bubble inflated by cheap credit has ushered in an industry-wide fear of high-value, small-deposit mortgages. In the long term, a move back towards more responsible mortgage lending will undoubtedly prove wise, if not a little predictable. But in the short term, the knee jerk reaction of rolling back maximum mortgage values has prevented many from getting onto the property ladder.

House prices do vary substantially by region, offering easier rides for first-time buyers in certain areas. Rightmove’s latest report showed record high average house prices in Greater London and the south west of £464,994 and £270,735 respectively. The south east is perched in between at £316,245.

Average house prices in the north of England are far lower. Rightmove’s ‘north region’ – essentially from north Yorkshire and north Lancashire to the borders – emerges bottom with an average price of £151,891, a third of the London average. Yorkshire and Humberside is next at £156,672.

But these house price variations come within drastically different contexts. The average wage within the boroughs of Greater London is pegged at over £35,000 – with the highest earning constituency, Westminster North, boasting an average of £39,745. In comparison, the lowest paid constituency, Blackpool South in Lancashire has an average of £15,481.

This difference is less drastic than the house price gap, suggesting that buying a property in the north is easier than it is in the south.

Price stability

Looking at static property price figures only tells half the housing story. Looking back to the May 2008 pre-crash peak shows that house prices have continued to accelerate in the south. The Greater London average is now 16% higher than in May 2008, while the south west figure is just over 2% higher.

However values have dropped across the north. Prices in Yorkshire and Humberside are now 9% lower on average, while in Rightmove’s north region prices have fallen by an average of 4% between 2008 and now.

On a basic level this suggests that prices in the north are not as stable as in the south, making property a riskier investment. And at the extreme ends of the spectrum, this assertion has some truth in it. Even in the exceptional circumstances of the financial crash, prices in London only dropped by 4.1% and recovered strongly and quickly.

But when looking at the bigger picture, this is a touch too simplistic.

House price recovery

The largest drop in house prices between April 2008 and 2009 was not in the north at all. The east midlands suffered the most, with crashes of 11.7%. The north fell by 9.7% over the same period, while Yorkshire and Humberside dropped by 8%. But the south did not fare much better. Prices in the south west fell by 8.5% and by 7.6% in the south east.

These stats suggests that the regional gulf in house price changes over the past four years is more down toa failure of the north to recover at the same pace as the south, rather than extraordinary 2008 value falls. But still, over the past 12 months house prices in Rightmove’s north region have risen by 1.2%, while the Yorkshire and Humberside average has dropped very slightly by 0.2%. Hardly the nightmarish investment prospect that some may harp on about.

The failure of house prices in the north to keep pace with the south’s recovery can be predominantly explained by a lack of demand. Recent figures from Zoopla show that sellers are now slashing asking prices in an attempt to shift their properties. Northern locations dominate the chart of the biggest reductions. This lack of demand has been fuelled by the disproportionate impact of public austerity on northern regions.

With this context you won’t be shocked to read that a north/south gulf between households in negative equity (where mortgage debt is bigger than the property's value) has now opened up. Figures from Standard and Poor's show that mortgage borrowers in the north are 30% more likely to be in arrears.

Renting

Huge deposit levels for mortgages (driven by high house prices) in the south suggest a high level of demand for rented property. And indeed, recent stats from Spareroom.co.uk do confirm a swell of demand within London and the south east commuter belt, along with far higher rental rates in these two areas. However for landlords, this has not manifested itself in bumper profits.

Further research from Zoopla shows that a gulf in buy-to-let profits has opened up, but perhaps not in the way you would expect.

Liverpool, Hull and Oldham emerge as the areas with the highest rental returns, while Cambridge, York and Reading come out with the lowest. Again, this is down to the greater exposure of these areas to austerity.

As Zoopla Director Nick Leeming explains: “Property prices in these locations are low, but this does not necessarily mean people can afford to buy them.” This pushes more people into the rental sector, producing a perfect and profitable storm for landlords: high demand, cheap property prices and reasonable mortgage rates.

Bubbles and busts

So which pole is England’s property winner? Well – as dissatisfying as it is – I’m starting to side with the response that this is indeed an unanswerable question. I’ll go further. As a proposition (and despite the last 900 words), attempting to pick a polar property winner is an exercise in futility.

Looking back across the so-called divides within house prices, market stability, negative equity and rental, it becomes obvious that property gulfs are not levered open unilaterally. They exist because of other more serious social and economic cracks: most predominantly, job creation.

And perhaps this is where our law makers go wrong. By viewing house prices as the problem and not the pointer, they paper over the cracks when they should be fixing the fissures.

More on property:

Blip or bust: the end of the rental boom? 

The towns where taking in a lodger could make you mortgage free

How are mortgage rates decided?