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London Property Market 12 April 2013

Housing market recovery continues but regional imbalance remains

Surplus public land needs to be released, much more quickly and with fast track planning consent.

The housing market shows continued signs of recovery, however, there remains considerable regional variation. HMRC reports that transaction numbers rose by 6.3% in February; which is up by 7.3% compared to February 2012. Whilst Land Registry data points to modest price growth – average house prices rose by 1% in the year to end-February 2013 and by 0.2% in the month of February itself.

The Government is helping the recovery process via its various schemes designed to facilitate access to mortgage finance, most recently with the Help to Buy scheme as announced in the Budget. Despite criticism from some quarters, these initiatives have resulted in a raft of record low fixed rate mortgage deals being offered by lenders, whilst also engineering high loan-to-value ratios, therefore alleviating the deposit hurdle for many new buyers at the lower end of the market.

More now needs to be done on the supply side to eat into the housing shortage, and to ease potential inflationary pressure on prices, as more households become in a position to buy. Surplus public land needs to be released, much more quickly and with fast track planning consent. Developers could perhaps be incentivised by being offered land at below market rates, with the Government taking a proportion of the profit as payback. The Government could also help developers' finance by forcing banks to allocate a proportion of their loan books to residential developers.

The issue of regional variation in the housing market will be a tougher nut to crack. Market performance is fundamentally determined by the health of the economy. If people are concerned about losing their jobs or if their pay is failing to keep up with inflation, then even if favourable mortgage deals are available, households will hesitate to commit to any significant financial burden.

This largely explains why the London market, with its relatively strong economy, remains an oasis compared to the rest of the country; plus the high proportion of demand from international buyers, which has helped to inflate prices. The South East market has benefited from the trickle effect out of London, with the huge commuter workforce which retreats to the leafy suburbs at the end of the working day.

In contrast, a recent report from debt charity Stepchange, highlights that despite lower property prices, regions in the North of England, Scotland, Wales and Northern Ireland all have higher than average proportions of mortgages; many with payment problems for loans taken out between 2005 and 2010. Northern regions are also the most affected by negative equity, with above average proportions of "mortgage prisoners" in the North East, North West, Yorkshire, Wales and the Midlands.