Across both the prime London and prime regional markets, average values fell by -20% over the 18 months from the 2007 peak to the trough in March 2009. However, over the past five years there has been a significant divergence in performance.

House prices in prime London have seen continuous strong growth since their trough, increasing on average by 73.0%, resulting in average values now reaching 36.2% above their 2007 peak. In the regions, however, there was a different picture. While prices started to recover in 2009, by mid 2010, as it became apparent the recession was continuing, values began to fluctuate and to experience small falls. This continued for two and a half years until the end of 2012.

The turning point in the market happened in early 2013. As the mainstream housing market began to see price growth, so too did the prime regional markets, albeit not at the same rate. Since December 2012 values in the UK mainstream markets (excluding London) have seen a growth of 6.1% according to Nationwide compared to a growth of 5.1% in the prime regional markets.

Behind this general picture, it is clear that different property types and locations have reacted differently to changing market conditions.

Location, location

Most apparent is a clear geographical divide. The markets with the closest links to London have seen the strongest recovery, benefitting from a flow of housing wealth generated in the capital. Average house prices in both the prime suburbs – locations still within the M25 – and the inner commute – locations between 30 minutes and an hour’s commute to London – have reached their 2007 peak levels.

However, while all regions have now seen positive annual growth, there is still a value gap between locations outside commuter territory and the rest of the UK. Average house prices in the wider south of England are currently -11.0% below their 2007 peak and in Scotland that figure falls further to -22.5% below.</

Town vs country

Geographical location is not the only driver of house prices. Since the downturn there has been a growing trend towards living within thriving towns and cities other than London. This has resulted in prime urban properties outperforming their rural counterparts across the UK.

Across all the prime regional markets, prime urban properties are now on average just 3.4% below their 2007 peak, compared to their neighbouring village and rural locations which are lagging behind at -11.2% below. This has been particularly evident in the prime cities in the outer commuter zone, notably ‘little London’ locations such as Oxford, Cambridge and Winchester.

Demand is strong in these cities, in part due to the high concentration of prime housing stock and good schools. This has led to a strong growth in house prices with average values now reaching 15.7% above their 2007 peak; the best performing subsector of the prime regional market. In fact, in the past year alone, house price growth reached double figures at 11.2%, comparable growth to prime London at 13.1%.

Beside the seaside

The prime coastal hotspots of the south west and the east, locations such as Wells-next-the- Sea, Aldeburgh, Sandbanks and Salcombe, were traditionally driven by buyers coming from London – often with bonus money and looking for a second home. This resulted in very strong house price growth in the years leading up to 2007.

This changed when the credit crunch hit and the demand adjusted to become predominantly local, resulting in prices being re-pegged to the change in the market as buyers had lower levels of discretionary equity. By mid 2013 values reached their lowest levels since the downturn at -26% below their 2007 peak.

However, over the past six months, the prime coastal property markets have seen evidence of discretionary second homes buyers re-entering the market, and average values have increased by 8.3%.

What next?

We expect, as we enter the next phase of the housing market recovery, house prices across the prime regional market to perform in line with prime London. In stark contrast to the previous five years, we anticipate that the suburbs and commuter locations will outperform prime London.

In 2013, we saw the first signs of wealth beginning to flow out of the capital, and this has become even more evident so far this year. As the economy continues to recover and house prices outside of London show growth, we predict more London buyers will make the move out to the regions, and take advantage of the price gap.

The prime markets face some challenges over the next five years given the focus on the taxation of high value property that has already resulted in increased stamp duty above £2 million.

With an election in 2015, and property taxation high on the political agenda, any further changes to the taxation of high value property risks a period of sobriety.

However, on the assumption that sense prevails and a full scale mansion tax is avoided, we expect a continuation in the growth cycle post-2015.

Taken from
Spotlight: Prime Regional Residential Markets