Market Commentary - September 2000

After the eye-popping growth of property prices in some areas of the country at the start of the year, the latest figures deserve more comment than simply 'but that's ludicrous...'. The current figures from the Land Registry show 2 striking trends:

• The property market is cooling gently. Property prices have stopped rocketing, but grew in all areas by between 1.4% and 4.4% in the 2nd Quarter of the year. This is a Good Thing, since it means that the market is less likely to nose dive.
• The disparity between London & the South East and the rest of the country continues to grow. At the start of 1997 a typical London property cost about twice as much as a typical Welsh property. During the 2nd quarter, this had risen to 3 times - a whooping £128,000 difference in price.

Whilst the first point is merely of passing interest, the second is of deeper significance. In order to get an 80% mortgage on a typical London property, you need to be earning roughly £50k per annum. This puts the average property out of the reach of almost all public sector workers, and the majority of the population. I believe that the disparity is simply not sustainable and something will have to change. Some of the results may be:

• House prices in London will stabilise or fall, as people cease to be able to move into the Big Smoke and more people want to move out
• It will become increasingly difficult to find teachers, health workers, council workers willing to work in London. They will either need to commute a long way to work, or live somewhere that does not match their expectations.
• Pay may increase to levels that make London property more affordable. This could happen in the private sector, but can you really imagine nurses getting paid enough to afford £175,000 houses in the near future?
• The government may try to develop a scheme for 'reserving' some property for public sector workers. If it does, the chances of a fiasco are pretty high.
• Service sector companies, the powerhouses behind the growth of London and the South East over the last 10 years, will start to relocate to other areas. Cambridge is driving growth in East Anglia and a cable company has recently overtaken a government shipyard as the largest employer in the South West. Expect this spread to continue as the employers look for cheaper labour and the employees look to improve their quality of life.

I don't think the changes will happen rapidly - or even be noticeable for a few years - but the current situation is not sustainable in the long term.

If I'm right....and it's a big if ... here's my Cunning Plan for moving out of the South East and making your life easier.

Mr and Mrs Smith bought a typical London property 3 years ago for £120,000. They had a mortgage of £100,000. They sell the property now for £190,000. With that money they can buy a much nicer property in, say, Norfolk for their £90,000. They no longer have a mortgage, saving about £800 per month ... and their shirt collars don't have a layer of grime around them when they come every night.

Mr and Mrs Jones bought a house in Norfolk 3 years ago for £60,000. They had a £55,000 mortgage. Their property is now worth £75,000. Mrs Jones is offered a job in London on £5,000 pa more. She works out that she would be able to afford properties around £95,000 - half the average price. Mr & Mrs Jones decide to stay Norfolk. Wise People.

Disclaimer: All the above (with the exception of Land Registry data) is purely my opinion, and could be complete rubbish. If you want to move from Norfolk to London, that's fine by me.

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