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  • Property Prices

    The North/South divide - property perspective

    It is widely believed that the recession will bite deeper in the North, and the North of the U.K. will take longer to recover from it ....

    New figures suggest that repossessions are much higher in the North, meaning that house prices will be down-valued by repossessions in those areas.

    What impact will this have on house prices and will we see an even more marked difference between those in the North and the South of the country?

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    Hi Vanessa,

    Firstly, I shall most probably see you at the Networking event, I look forward to it.

    Secondly, I think this is a very detailed and difficult discussion point. We are already seeing, as you correctly pointed out, more repossessions in the North as opposed to the South - although there was a lag time involved here as well - the South, specifically London, suffered first, and it is now that the North is really beginning to feel the pain whereas the South is recovering.

    There was an article in the Times this weekend stating that mortgages were much harder to come by in the North - specifically New Build, Off Plan developments (unsurprisingly) - the article can be found here https://property.timesonline.co.uk/tol/li...850340.ece

    The North will certainly suffer for some time - in fact I am seeing a huge pick up in applicants from the North wanting to move overseas because they are so fed up with it all and a lot of thing are already predicting what will happen over the next few years - they want to go and live in the sun!

    Best wishes all.
    James

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    Thanks James.

    I think there is also the issue of shortage of available development land in the South East, whereas in the North, they have endless old industrial units, car parks, old mills etc that can be redeveloped. This will also be a factor.

    London is our capital and the centre of our wealth and that radiates out into the surrounding areas. London's influence is probably a two hour radius (via train) which means the South East is very attractive to commuters.

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    The divide is less about north and south. It is closer to areas with rising employment and areas with declining employment.

    Historically a lot of the UK's industrial might was in the North where the physical resources would found. The South has a different growth pattern.

    Density also matters. If you have an area with a shortage of housing (not land, housing) then with a high demand you will find prices rise. In some northern cities the population peaked decades ago so there is an honest surplus of housing compared to what is needed now.

    John Corey
    Follow me on Twitter -> https://www.twitter.com/john_corey
    https://www.ChelseaPrivateEquity.com/blog

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    John Corey 


    I host the London Real Estate Meet on the 2nd Tuesday of every month since 2005. If you have never been before, email me for the 'new visitor' link.

    PropertyFortress.com/Events

    Also happy to chat on the phone. Pay It Forward; my way of giving back through sharing. Click on the link: PropertyFortress.com/Ask-John to book a time. I will call you at the time you selected. Nothing to buy. Just be prepared with your questions so we can use the 20 minutes wisely.

    It does make me chuckle sometimes when Southerners refer to "The North" ... as if its some wasteland inhabited only by flat-cap wearing, bitter-drinking, factory workers who say "Eee bah gum" a lot and all live in 2-up 2-down terraces that have only just had inside toilets installed. Whereas in London, the streets are paved with gold ...!

    Just kidding Vanessa!

    Land is obviously much cheaper than London in most of the North of England, although parts of Manchester, Liverpool, Chester, Birmingham, Leeds, Sheffield .... etc ... can be very expensive. Buildings costs are also lower.

    But, the main driver of house prices of course is wages and credit availibility. I think some people in the South would be surprised at how many people in the North earn significant amounts. Also, few people in the North have the drain on their wages of massive house prices and transport costs. I see a lot of people in the South with impressive gross wages, but then very high overheads when their impressive mortgage and transport bills are factored in.

    Also, a far greater proportion of people in the North are self-employed, and there are a lot of public sector jobs, which tends to protect against single employers casuing massive damage to a local area.

    In Blackpool, for example, there is Altstom, AXA, BAE Systems, plus a large hospital & around 20 separate civil service offices. Add that to the high proportion of self-employed people, as well as the tourism trade, and you have a pretty stable economic area.

    From a BTL perspective, it is generally much easier to get started in the North, than in the South, due to the poor yields and high prices on most South East rental stock. If I were starting my BTL investing from scratch, I would definitely start in the North, as yields and purchase prices are far better, generally.

    It would be interesting to see how a couple of million quids worth of BTL stock would perform in terms of capital appreciation over 20 years (say) in a similar typical BTL area in the North & South. From a risk perspective, I would always go for more, smaller props, due to yield and ability to sell off 1 or 2 props in an emergency.

    Just a few thoughts!

    Stephen Fay ACA
    Fylde Tax Accountants
    Tel: 01253 350 123
    Email: stephenfay@fyldetaxaccountants.co.uk
    Web: fyldetaxaccountants.co.uk

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    Stephen Fay FCA
    www.fyldetaxaccountants.co.uk
    'The Property Tax Specialists'

    Thanks for the balanced view Stephen!

    For the record, we do have props up North in Leeds and Manchester, as we believe in spreading risk. We have also just got a small 2 bed terrace in Preston, so not too far from you in sunny Blackpool!

    There is a line of thinking that, when the Conservatives get in, they will shrink the public sector to save costs and there will be a lot of workers made redundant, so that will have an impact.

    I should also point out that I never tar an entire area with the same brush. Areas can differ from town to town, and even street to street, so due diligence is the key when investing, as always.

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    *chuckle* ... I thought you would like that post Vanessa! You are absolutely spot on that due diligence is key. In the Blackpool area, there are some grotty areas, and some extremely affluent areas. The capital growth prospects are very different for these!

    I continue to work for various financial services companies in various roles, and see how badly the industry, based in London, has suffered recently. That is when all those people with mammoth mortgages and expensive tastes really can suffer. Having said that, Southerners seem to earn more on average, and so can borrow more in an emergency. I suspect thats why buying BMV is more difficult in the South.

    Regarding the public sector, I wouldn't expect even a Tory government to be able to make significant inroads into the public sector. In Blackpool, we have HMRC, War Pensions Directorate, ERNIE (the Premium Bonds computer), theBenefits Agency, the Child Support Agency ... etc. If anything, these are set to grow as the Government tries to direct its spend to cheaper areas. The civil service in Blackpool is growing, not shrinking, with new sites and buildings being taken. I watched a couple of episode of Yes, Minister las week, and it was uncanny how familiar the storeies were ... i.e. cutting waste etc. I don't have much faith in politicians myself!

    Stephen Fay ACA
    Fylde Tax Accountants
    Tel: 01253 350 123
    Email: stephenfay@fyldetaxaccountants.co.uk
    Web: fyldetaxaccountants.co.uk

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    Stephen Fay FCA
    www.fyldetaxaccountants.co.uk
    'The Property Tax Specialists'

    Hi,
    We own properties in the North and the South and I have to say it is the ones in the North [i'm including the Midlands here as well] which give us greatest concern when remortgaging.

    So far, the properties we have bought down South [London, Dorset] have fared well and even improved capitally in the last year of ownership [yes, even during this 'downturn']. The increase is purely driven by demand - people want to live close to the capital/ sea - and more of them want to - which is driving prices up again.

    Up North we are seeing mainly investors returning to the market - but that is not increasing our capital greatly as investors are driven by the highest yields.
    In essence the yields and initial outlay are better up North, but I would have to say, having had a recent revaluation of a property in Poole bought just 9 months ago the 15k capital increase does it for me [we didn't do a thing to the property].

    I prefer having properties which are in demand by home owners rather than investors and while I am realistic enough to understand the high yields of the Northern properties prop up the Southern properties, I know the Southern will be easier to sell and will make more money in the long run.

    sam
    https://www.VirtualLetz.com

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    I think it would be a very interesting experiment to pit an investor in the South with one from the North. Give each the same seed capital, and access to finance, and see how they get on over a 10 year (say) timeframe.

    Allow each to leverage their stock over the years, capital and rents permitting, and re-invest.

    I have to disagree with the idea that property in the South "will be easier to sell and make more money in the long run". In my experience I can buy 3 times as much property given the same capital as a Southern investor, plus the rental profits I make significantly add to the overall profits.

    I think the idea that London capital appreciation is going to outstrip good quality areas of the North is simplistic and flawed. I have been buying and selling property in the North successfully for 10 years and have never struggled to sell a well-presented, reasonably-priced property.

    Regarding the demand for property, every one of my props is a first time buyer prop (FTB). That means there is the maximum demand possible, as these are in demand by both prospective home owners and investors. The FTB market is the least risky strata of housing stock, since virtually any working person should be able to afford to buy it. I tend to find that BTL investors who get into trouble do so because they select properties that are not suitable for BTL e.g. they "like" the house etc.

    Stephen Fay ACA
    Fylde Tax Accountants
    Tel: 01253 350 123
    Email: stephenfay@fyldetaxaccountants.co.uk
    Web: fyldetaxaccountants.co.uk

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    Stephen Fay FCA
    www.fyldetaxaccountants.co.uk
    'The Property Tax Specialists'

    Just to point out that there is also such a place as the south west. When most people refer to the "South" they seem to mean london.

    Lets not forget us cider drinkers - it's a totally different world again with possibly many of the same problems that some northern towns have but slightly warmer.

    Places like Barnstaple and Plymouth often have high levels of unemployment and low wages. The difference is we can sit on the beach!

    Stephen Fay ACA said:

    It does make me chuckle sometimes when Southerners refer to "The North" ... as if its some wasteland inhabited only by flat-cap wearing, bitter-drinking, factory workers who say "Eee bah gum" a lot and all live in 2-up 2-down terraces that have only just had inside toilets installed. Whereas in London, the streets are paved with gold ...!
    Just kidding Vanessa!
    Land is obviously much cheaper than London in most of the North of England, although parts of Manchester, Liverpool, Chester, Birmingham, Leeds, Sheffield .... etc ... can be very expensive. Buildings costs are also lower.
    But, the main driver of house prices of course is wages and credit availibility. I think some people in the South would be surprised at how many people in the North earn significant amounts. Also, few people in the North have the drain on their wages of massive house prices and transport costs. I see a lot of people in the South with impressive gross wages, but then very high overheads when their impressive mortgage and transport bills are factored in.
    Also, a far greater proportion of people in the North are self-employed, and there are a lot of public sector jobs, which tends to protect against single employers casuing massive damage to a local area. In Blackpool, for example, there is Altstom, AXA, BAE Systems, plus a large hospital & around 20 separate civil service offices. Add that to the high proportion of self-employed people, as well as the tourism trade, and you have a pretty stable economic area.
    From a BTL perspective, it is generally much easier to get started in the North, than in the South, due to the poor yields and high prices on most South East rental stock. If I were starting my BTL investing from scratch, I would definitely start in the North, as yields and purchase prices are far better, generally.
    It would be interesting to see how a couple of million quids worth of BTL stock would perform in terms of capital appreciation over 20 years (say) in a similar typical BTL area in the North & South. From a risk perspective, I would always go for more, smaller props, due to yield and ability to sell off 1 or 2 props in an emergency.
    Just a few thoughts!
    Stephen Fay ACA
    Fylde Tax Accountants
    Tel: 01253 350 123
    Email: stephenfay@fyldetaxaccountants.co.uk
    Web: fyldetaxaccountants.co.uk
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    Editor of Your Property Network Magazine
    Leading property resource for UK investors.
    Grab a FREE copy of YPN at http://bit.ly/YPNfree

    To extend Stephen's point a bit,

    Lets take it a step further. Remove the North vs. South aspect of the discussion.

    An investor who has solid cash flow will find they do better in many market cycles. If you have the cash flow you are not forced into bad decisions. When you have built up great cash flow (not from the lowest interest rates in 315 years) you can then add a few properties that are have lower yields to start but which will have better appreciation. There are properties will have better long term appreciation trends while not such great rental prospects.

    Independent of area rental income has a sweet spot that is not lined up with values. The higher end properties do not generate a proportional greater amount of income.

    The true alternative is to switch to commercial where the core value of any property is based on its income after all expenses. Like a production asset, the value of a commercial building is based on what it produces as there is no premium for owner occupancy like there is in residential.

    John Corey
    Follow me on Twitter -> https://www.twitter.com/john_corey
    https://www.ChelseaPrivateEquity.com/blog

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    John Corey 


    I host the London Real Estate Meet on the 2nd Tuesday of every month since 2005. If you have never been before, email me for the 'new visitor' link.

    PropertyFortress.com/Events

    Also happy to chat on the phone. Pay It Forward; my way of giving back through sharing. Click on the link: PropertyFortress.com/Ask-John to book a time. I will call you at the time you selected. Nothing to buy. Just be prepared with your questions so we can use the 20 minutes wisely.