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Bright city lights

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  • 10/02/2003
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In this, the first regional mortgage market focus, Mortgage Solutions visits Leeds, the thriving 'capital' of Yorkshire

The UK housing market is hugely diverse. No one would claim there is not a clear North-South divide in this respect and it is accepted there are significant discrepancies within the different regions. But for those working in the mortgage industry most housing market surveys are usually too general to be of practical use. It is one thing to say house prices increased more in Yorkshire and Humberside than in the South West, but for mortgage advisers these surveys do not give information on variations between the towns and cities in these regions, and more importantly within the towns and cities themselves. As such, Mortgage Solutions will be now include a regular mortgage market focus on individual areas throughout the UK, looking at the local economy and housing market.

In this inaugural feature, the area under the spotlight is the metropolitan district of Leeds. As the ‘capital’ city of Yorkshire and Humberside, Leeds is benefiting from what economists term the ‘ripple’ effect. This is the term used to describe where a housing boom, which usually starts in London and the South East, has caused an increase in house prices to ripple outwards across the country. This latest ‘ripple’ has now progressed north to such an extent that figures from Nationwide show while London prices increased 21% in 2002, those in Yorkshire and Humberside rose 35%.

A growing city

However, it would be unfair to suggest that the housing market in Leeds is booming because of external factors alone. Leeds is now one of the fastest-growing cities in the UK, and forms one corner of the ‘Golden Triangle’ along with Harrogate and York. According to the city council, there are now 442,000 people working in Leeds, and it is expected the city will provide around 37% of the region’s additional jobs between 2002 and 2012.

Leeds accounts for some 29% of the region’s finance and business employment and 35% of employment in legal services. It is now commonly seen as the second most important legal and financial centre after London, as many top firms in these fields have an office in Leeds. Companies such as PricewaterhouseCoopers, Eversheds, Halifax, Scottish Life Mortgages (SLM), and Leeds & Holbeck Building Society now have their main or second office in the centre of Leeds.

One of the key reasons for this is its accessibility. Steve Scholes, director of Scottish Life Mortgages (SLM), believes Leeds is a good base from a commercial point of view. He says: ‘If you need to have a mobile work force, then Leeds is fairly central for the whole country so everywhere is easy to get to. The Pennines divide the UK in the north and Leeds is on the East, with the main transport links, making it a logical choice to have a base.’

Leeds boasts a recently revamped train station and is just two hours from London and Glasgow by GNER. The airport, while still small, is just four miles from the city centre and has launched Jet2, a new budget airline. In addition, an extensive tram network is being developed which will become operational in around five years.

However, while the proposed tram network is expected to boost house prices in all the areas that it passes through, such as Headingly and Chapel Allerton, it is not expected to reach to the outer suburbs and it is not expected to provide a commuter link to the airport, as hoped. Nevertheless, it may link up some of the less affluent areas south of the city centre such as Tingley and Hunslet.

As well as finance and law, Leeds is the major base for the UK’s service sector, which employs 315,5000 (82%) of the workforce. The DSS has relocated here from London, and most of the country’s major telesales operations operate out of Leeds, for example, Green Flag, First Direct, and Direct Line. Skipton Building Society, which has just opened a new office for several of its subsidiaries including the new credit reference agency, Call Credit, has also taken advantage of this labour supply by opening new offices in the city centre for these companies.

John Goodfellow, chief executive of Skipton Building Society, says: ‘The biggest employment sector in Leeds by far is the service sector ‘ especially phone centres, marketing and so on. It has a good pool of labour, and as with many cities around here, it has benefited from the downturn in employment in the traditional manufacturing towns in the area and consequently people have gravitated to Leeds looking for work.’

There were around 5,000 people living in the city centre by 2001 and this figure is expected to double over the next few years as the amount of residential property in and around the city centre increases to meet demand. It is partly due to this that house prices in the city centre have rocketed, as the demand from young professional workers far exceeds the supply of quality housing. As a consequence, Leeds city council now has an extensive residential redevelopment plan in place that should eventually increase the number of quality city centre properties by 10,000.

Property schemes

A total of £5.2bn has been invested or is earmarked for investment in property schemes in Leeds and the plan is to split it between the redevelopment of existing sites and new build schemes. A lot of the redevelopment sites have, historically, been concentrated around the river Aire in the city centre, where old warehouses and factories are being turned into apartments. This programme, which includes developments in areas such as Victoria and Merchant Quay, and Chandlers and Langton’s Wharf, has been in place since the 1990s.

Ian Ward, chief executive of Leeds & Holbeck Building Society, describes Leeds as a boom city in terms of redevelopment: ‘These redevelopments started in the 1990s and many old mills and warehouses along the waterfront have been converted. And this is going to continue for the foreseeable future as plans to expand the waterfront another four miles have just been announced.’

According to the Leeds office of RICS affiliated chartered surveyors, Carter Jonas, the most popular types of housing in this area are one and two bed-roomed apartments.

Toby Cockroft, head of residential property at Carter Jonas, says: ‘The area is predominantly made up of small apartment blocks. Some are mixed use ‘ with offices and brasseries downstairs, and others are purely residential.’

While buyers may have been able to take advantage of relatively low prices 10 years ago, they have now increased significantly in this area ‘ and are comparable to some prices further south. For example, a luxury two-bedroom apartment in Merchant Quays could fetch around £210,000.

Stuart Vitty, partner at mortgage brokerage, Independent Lending, says: ‘The river redevelopment has been going on for seven or eight years and has proved to be a good investment. Initially one-bed apartments went for around £31,000-£32,000, but now can reach prices in excess of £100,000. And two beds can be double this.’

However, Cockroft notes that some of the penthouse apartments are now fetching £750,000, which is comparable to central London.

Demand is such that landlords can command a rent of over £800 per month on these city centre apartments. Nevertheless, like London, the top end of the buy-to-let market is becoming saturated. Vitty says: ‘We are finding lets in the city centre are reducing at the moment. Last year a two-bedroom apartment would have gone for £1,000 per month, now it is more like £850-900 per month because the area has been swamped.’

Because, the number of conversion properties available in the centre is finite, much of the development is now focused on new build, and increasingly on mixed-use developments in the city centre. The most obvious example is the K2 building. Built just off the main Headrow strip, K2 is a mixed-use tower, with a number of designer bars and restaurants underneath apartments and penthouses. These apartments are also being sold for around £750,000 and the penthouse is reputed to be on the market for £1m. A few years ago, £1m houses were uncommon outside of a few exclusive areas in London, but are now an increasingly common site in cities such as Leeds and Manchester.

Despite these high prices, and because space is an overriding factor, there are few townhouses in the centre of Leeds and car parking is at a premium. Borrowers should be made aware that in some cases a parking space may cost an extra £15,000.

With over 440,000 working in Leeds and 2.2 million people living within a 30-minute drive of Leeds city centre, it is not surprising that traffic congestion is a problem.

Paul Thompson, marketing and communications consultant of SLM, says: ‘Many people work and live in the centre, but there are many areas outside the city that have become part of a commuter belt. As a result there is significant congestion problems on the roads during rush hour. For buses and cars a 15-minute journey can take an hour. The majority of the workforce now travels into Leeds.’

Putting up properties

Consequently there are a number of new-build projects currently underway as more affordable housing is required for the city’s fringes. Two new areas of development outside the immediate centre are the Aire Valley Employment Area (AVEA), and Holbeck Urban Village. The AVEA is a seven-year programme to develop an area between the Royal Armouries museum and Leeds city centre. It is expected the site will be home to 40% of the city’s new workers over the next 10 years. The Holbeck site is to be transformed into a mixed-use luxury residential and business area over the next 10 years. It will receive funding from regional finance initiative, Yorkshire Forward and the European Comission, and will include a new internet quarter.

As a city Leeds is fairly unusual in that rather than an east-west economic divide it has a north-south divide. Commenting on this, Taylor says: ‘In basic terms the north Leeds belt is the expensive area and the south less so. In the north there is a lot of new build in former green belt areas, although places such as Rothwell in the north east are no longer classed as villages as they have been subsumed into Leeds. A lot of these areas springing up outside the city centre are small commerce centres with shops and a town feel to them, especially as a number are large enough to support department stores.’

Prices in Rothwell for a modern three-bedroomed detached property are rising, but, at around £140,000, are still more affordable than smaller properties in the city centre.

Vitty says prices in the immediate centre have become so great that more people are choosing to move further out in the expectation that price rises will soon mirror those in the city centre.

He says: ‘There has recently been a move back towards the suburbs. The city is sprawling outwards. And young professionals are looking further afield, at back-to-back terraces in places such as Kirkstall, Yeadon and Adel. This is thought to be the next big thing ‘ an alternative to the hub.’

Places like Shadwell and Adel can see prices of around £300,000 for a detached family house, but a terraced house can be bought for less than £100,000.

The professionals’ choice

One of the more recent areas to start to become popular with professionals working in the centre is the Chapel Allerton district. Prices here vary significantly, as prices start from around £80,000. And a three-bedroomed semi-detached property can fetch around £140,000, whereas a three-bedroomed detached house in a different part of the district can go for more than £250,000.

However, prices in the Leeds market are not growing uniformly. Taylor says: ‘Although house prices are booming, you can still buy a house for £10,000 in some areas. While first-time buyers can still get onto the housing ladder they may have to live in areas that may not be their first choice.’

Cockroft adds: ‘I would not argue with this, but £10,000 is perhaps a little low. There are some areas, such as Harehills, where there is a lot of terraced housing, but it more likely to go for £25,000-£30,000.’

David Pank, sales director at estate agent Manning Stainton, says that ordinary workers are being pushed further out: ‘Many people in north Leeds cannot afford the prices there, so a lot of first- and even second-time buyers are going there to get more square feet for their money.’

There are also two universities in Leeds with around 60,000 undergraduates, and with two large hospitals, Leeds General Infirmary and St James (supporting a number of dental and nursing colleges) it is perhaps not surprising the city has a thriving buy-to-let market.

Matthew Russell, senior sales and marketing manager at The Mortgage Business (TMB), says: ‘From its own figures TMB has found a higher number of buy-to-let properties in the Leeds area than the national average. This is not surprising in a university and finance centre where there is a strong and constant demand for rental accommodation. As expected, there is a lower average loan size on buy-to-let mortgages in the Leeds area due to the northern influence on property prices. This is also supported by TMB’s let to buy lending figures which are nearly double in this area compared to national figures.’

Core buy-to-let areas

With both universities based in the Headingly area it is not surprising the core buy-to-let market is in this area. Both universities are oversubscribed and students are spreading out into the Woodhouse area next door.

Vitty says: ‘Commercial landlords are buying up a lot of the properties, but over the last two years there has been a growing trend of parents buying houses for their children. Many properties are post-war terraced houses and they are not in perfect condition. The professional landlords are less bothered about this, but parents may be more choosy. Between 12-25 people come to each viewing, and every property sells within a few days of coming onto the market.’

In 2002 landlords were experiencing 10% yields, and this is expected to remain high at around 8% this year. And as house prices in Headingly went up 30% in 2002, and are expected to rise by a further 10% in 2003, there are growing concerns the area is almost too buoyant.

Vitty says: ‘The prices of properties are being pushed ever higher by estate agents. At the moment some valuations are coming in short of the asking price. Many estate agents are looking for parent purchasers. They don’t barter and they look after the properties, and they sell on in a few years time so the estate agents can get more money. Student rents average around £45-£55 per week and questions are being asked how much can they be worth.’

However, Pank strongly denies this. He says: ‘The market is the market. People will pay a price if they think its worth it. It is just supply and demand. Our job is simply to get the best price for the seller.’

As for the future of the Leeds housing market as a whole there are likely to be further changes in the city as startling as there has been over the last decade, with the greater metropolitan area of Leeds spreading out and bringing in more small towns and villages within its influence.


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