BRITISH PROPERTY BOOM STARTS

Where will house prices rise?

You read it here first. Britain is about to have a property boom. 

British homeowners will owe their good fortune to the “ripple affect”, a phenomenon that has characterised every modern British housing boom. 

The ripple affect works like this, property prices rise in London, then spread out across the rest of the country, region by region, moving north and west, until finally everyone agrees “there's nowt like bricks and mortar as a good investment”. We are at an early point in the process with price rises rippling out of the British capital into parts of south-east England. One or two markets further afield are also looking busy. 


London leads the way

So, here's a snapshot of where we are at now. Property prices in the most desirable parts of London, like Kensington and Chelsea, are 10 per cent above what they were in early 2008, at the height of the previous housing market cycle prior to its collapse later that year, figures from website zoopla show. Property prices for most of the rest of London are close to parity with 2008 levels. 

Across Britain as a whole however, prices remain 8 per cent below peak levels even when the London price surge is added, which goes to show how depressed most of the rest of the country's housing market remains. In northern English cities like Bradford, home prices are 15 per cent below where they were five years ago.

But, in south east England, housing markets in prosperous towns and cities have been recording small property price rises for one or two years. Slightly further afield, in some West Country and East Anglia locations, property transactions and prices are increasing, positive evidence that the ripple affect is strengthening. It has been felt most strongly in the West Country city of Bath where prices have jumped 7 per cent over the past 12 months.

Ironically, the cause of the ripple affect are those high property values in the capital. When Londoners find they can no longer afford to buy or rent a home in their city, they look further afield, and they are doing so in ever greater numbers. Estate agency, Knight Frank, says most demand for homes in cities like Bath, Oxford and Guildford comes from priced-out Londoners.


Overseas buyers impact

Overseas buyers, the biggest group of purchasers of multi-million pound homes in central London, have been making their presence felt in the capital's hinterland over the past year, especially in the exclusive, private housing estates of Surrey and Berkshire where they can get more for their money than in Mayfair or Knightsbridge. 

Individual British homeowners are knocking down their own homes to build “palaces” for Russians, Kazaks and Arabs. At Weybridge, Surrey, a former Rolls Royce executive has replaced his 100-year old home with Newnham, a house two-and-a-half times the size, complete with swimming pool, massage room and the large entertaining spaces sought by Russian oligarchs. He wants GBP14 million for it.


Better economy, better colleges, better transport help

Some businesses are escaping London's high office costs for outlying locations and this gives added momentum to the ripple affect, because employers and staff relocate with them. Brighton has 1,000 digital and technology businesses operating there, some of them former London operations, and this is contributing to its population and property values growing faster than the national average.

Improving transport links is giving a boost to some housing markets. Property prices have been rising in Bristol and Cardiff since plans were announced last autumn to electrify rail links between these two cities and London. The improvements will reduce train journey times between Bristol and the British capital by 20 minutes. Knight Frank estimates electrification will add up to 10 per cent to the value of homes in parts of Bristol.

The expansion of world class education facilities, including universities, independent schools, language colleges, teaching hospitals and further education colleges in cities like Oxford and Cambridge, and their ever closer links to private enterprise, is generating increased demand for homes from burgeoning numbers of students, teachers, lecturers, businessmen and scientists. 

The development of research facilities at Cambridge University has made “Silicon Fen”, the science parks outside Cambridge, an international hub for software developers, biotechnologists and electronics specialists. 

Oxford University's biggest construction project for more than a century, the 10-acre Radcliffe Observatory Quarter, will add 7 per cent to the value of homes surrounding it Knight Frank forecasts. Nearly completed, it consists of libraries, teaching premises, student accommodation and medical facilities.

A farming revival in some locations is having a positive impact on housing markets in smaller market towns, including Marlborough in Wiltshire. Businessmen have bought up tracts of countryside surrounding the town, increased farm productivity and launched new enterprises, like brewing. These activities combined with an expansion of the town's world-famous independent school, Marlborough College, have created jobs, drawn visitors and increased trade between businesses, underpinning demand for homes there.


Southern construction boom

Construction levels may be depressed nationally, but in London and much of southern England they are rising as house-builders compete to accommodate incomers. Bath is experiencing its greatest level of building activity since post-war reconstruction in the late 1940s. New schemes include Somerset Place, where Regency houses lining one of the city's five famous crescent-shaped roads are being restored by developer, SIAHAF. Used by a university since World War Two, the yellow Bath-stone buildings are being turned back into homes - nine houses and 20 apartments, with prices starting at GBP1.65 million. Six new houses are being constructed behind the crescent.

To the north, Edinburgh homes are rising in value, even though most of the rest of Scotland remains mired in slump. As Britain's second largest financial centre, Edinburgh's economic fortunes can more closely mirror that of London than of other Scottish cities, and this is reflected in its housing market trends.

Locations to watch in the English north and Midlands include Wilmslow in Cheshire, famous for all its millionaire footballer residents, and Stratford-upon-Avon, Shakespeare's birthplace in Warwickshire, which is attracting overseas buyers. Upmarket estate agency, Sotheby's International Realty, has expanded its operations in both locations to cater for increased buyer demand.

A housing market needs a strong economy to underpin it. With a double dip recession avoided, GDP growth forecast to accelerate over the next two years, and employment levels rising, Britons are starting to think it is safe to buy a home again. This ought to ensure price rises ripple out further from London.


Help to buy

The ripple affect will be given extra momentum by the Government's Help-to-Buy scheme announced in March which targets homes valued under GBP600,000. It will provide buyers with equity and loan guarantees equal to up to 40 per cent of the value of a property, thereby alleviating the difficulty many have with raising the large deposits demanded by banks. Mortgage lenders have been getting busier since the scheme was announced. Nationwide Building Society says mortgage demand from first time buyers has increased 70 per cent year-on-year.

The extent to which this embryonic housing boom is sustainable will depend on the balance between sound economic and demographic fundamentals on the one hand and government intervention on the other. Where Help-to-Buy is a dominant driving force, price rises will not be sustainable in the longer term, because they rely on buyers taking on large debts, but where improved transport links, economic recovery and growing population underpin demand, they ought to be. The towns and cities mentioned in this article fall into the latter category.   

(This is a version of my article which appeared in Identity magazine, UAE)