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The party’s over

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  • 17/09/2007
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The Northern Ireland housing market may be suffering a hangover but, as Jamie Obertelli says, it was necessary for its long-term health

Last week, Savills Private Finance blamed a lack of quality brokers in Northern Ireland for hampering its plans to take advantage of the house price boom in the region. While many firms have expanded their operations in the province, the real issue is not a lack of ‘talent’, but the strength of the market itself. Are Northern Ireland’s cooling house prices making the market a less attractive proposition?

At the beginning of 2005, Northern Ireland was the cheapest place to buy in the UK, with prices at 72% of the UK average, but the recent surge in house prices has made the region one of the most expensive. The latest figures released by property analysts UU, show that the average property in Northern Ireland has risen by over £200 a day in the last 12 months, now costing £240,408. With house prices reaching record highs, many commentators accurately predicted the pace of growth would rapidly cool this year. Now the market can no longer sustain such a rapid rise, what lies ahead?

Commenting, Ken Sives, partner at Larne Mortgage Centre, believes the market in Northern Ireland is currently at a standstill, because prices went too high, too quickly, and interest rates went up while wages did not. He believes prices will have to come down in order for the market to pick up again. “The whole market seems to be grinding to a halt. Prices have frozen. Investors are scared off by the fact that the rent and mortgage equation does not work anymore.” With average prices having doubled in such a short space of time, first-time buyers in the region face similar difficulties to their counterparts in the South East, affecting all areas of the market. Sives explains: “Houses are out of reach for first-time buyers because the wages are still low. Now no-one is coming in at the bottom end of the market, people at the next level are not able to move on.”

Level playing field

Rob Manson, director and head of Savills Private Finance’s Northern region, agrees that the market has ‘levelled off’, but does not see prices falling in the near future. Manson comments: “The market had to catch up with the rest of the UK at some stage and it has done that. Just as there is a time lag between the South and the North of the UK, there is a similar lag between the North and Northern Ireland.” As wage inflation has not kept pace with house price inflation, second-time buyers are having nearly as much trouble as first-time buyers. Manson says as a group, second-time buyers find it more difficult in Northern Ireland than in other areas of the UK. There is a big jump in price from a first property and the next property on the ladder. Given the wages in the region, he says it is harder to borrow the cash needed. He adds: “Moving up the property ladder is more achievable in the rest of the UK than it is in Northern Ireland.” 

The surge in buy-to-let investors in recent years has made life hard for many first-time buyers, with ever-increasing prices locking them out of the market. However, the slowdown in prices may benefit buyers hoping to get their foot on the property ladder. Derek Wilson, chairman of the Council of Mortgage Lenders (CML) Northern Ireland and head of mortgages at Ulster Bank, explains: “Buy-to-let investors are moving out of the market, taking their capital gains with them. These unsophisticated investors were not in the market for the long-term and they are now releasing properties for first-time buyers, which has seen the bottom end of the ladder awaken. There was a massive over-supply of rental properties, but as prices have slowed, these investors have moved out of the market and helped fuel activity in the first-time buyer sector, so the core market has slowed but we are seeing the lower end pick up.”

According to Wilson, many buy-to-let investors retreated from the market due to proposed Government changes on taxation and compliance in the market. It has been less bother for these investors to take their gains and invest them in other areas, such as the North East and Scotland. For the first time, many home owners in the province are sitting on a large amount of equity and are looking to move the capital into less expensive markets.

Peter Hatton, sales and marketing manager at Exclusive Connections, agrees: “The investors that made money through buy to let are now taking their equity and are investing it in cheaper areas such as Scotland, the North East and in particular Liverpool. These have traditionally been good areas for Northern Irish investors and it makes more sense to invest somewhere cheaper.” While the CML believes first-time buyers will return to the market, Hatton feels it will be some time before the bottom end of the housing market picks up. With so many people taking a cautious approach, would-be buyers are waiting to see what happens next.

Hatton explains: “Lots of people are flooding the market with properties, but people are not moving house. No-one is buying. The problem at the moment is that it is more cost-effective for first-time buyers to rent rather than buy. The market has bottomed out and prices will have to go down slightly.”

It is unlikely house prices in Northern Ireland will continue to rise as fast as they have done in the last few years, but talk of doom and gloom seems slightly premature. With so many buy-to-let investors wanting to pump their gains into new pastures, the balance of the market is certain to change. It remains to be seen how long it will take before the market gets moving again, but move it will. n

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