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Why we're set for a twin-speed housing market

The belief that the stamp duty break would end on March 31 caused a predictable frenzy among home buyers and sellers in February. Transactions were almost 50 per cent higher than the average over the last five years and up more than a fifth on January’s level, according to the latest figures from HMRC. 

The jump in housing transactions reported for February might not repeat to the same extent over the coming months, but the extension to the tax holiday means annual comparisons may well remain positive. March house price indices seem likely to indicate a renewed flurry of activity.  

Yet for all the encouragement given by government stimulus in recent months, the stage has been set for a twin-speed housing market. The cost barriers facing first-time buyers and challenges for those wanting to upsize, have limited house price growth in London and parts of the south east of England. For parts of the north and midlands, more affordable housing markets have given way to greater demand from prospective buyers. 

It is unsurprising, then, that northern cities Manchester, Liverpool and Leeds recorded the highest annual rates of house price growth in February, according to Zoopla, followed by the east midlands cities of Nottingham and Leicester. In fact, the annual rate of change in house prices are near decade-high levels in the midlands and the north, the property portal said. London was among the bottom five UK cities, after Cambridge and Aberdeen. 

The design of the mortgage guarantee scheme, together with the £250,000 stamp duty holiday threshold in place in England and Northern Ireland until the end of September, means that the demand dynamic looks set to continue. Two-thirds of homes in the north of England listed for sale in March were below that ceiling, which could entice more buyers into the market. In London, the south east and east, that proportion is less than 40 per cent. 

Buyers in the north could have another advantage. The mortgage guarantee scheme will work best in affordable markets. It might allow more people that have only saved a 5 per cent deposit to get on the housing ladder, but those looking to the average priced property in London - which stood at £501,000 in January, according to the Office for National Statistics - would still need a six figure income to arrange a big enough mortgage to fund the rest of the purchase. 

Admittedly, the English capital has escaped the reduction in regional price caps that were imposed on those using the new help-to-buy scheme elsewhere in the country. Yet the pool of potential buyers in the city could fall further once the scheme comes to an end in 2023.    

Short-term stimulus aside, it remains to be seen whether government plans to ‘level-up’ the UK’s regions will provide another driving force behind house prices outside the south east. Whether that does prove the case or not, housing markets of the north and midlands have the ingredients to outstrip their southern counterparts.