While serious issues remain, Northern Ireland has made remarkable progress since the days when the Province was riven by political and sectarian problems seemingly without solution. The so-called ‘Peace Dividend’ has brought in its wake a degree of normality the rest of the United Kingdom has taken for granted. Society has been the main beneficiary, while the local economy has demonstrated an impressive ability to take full advantage of the changed Northern Irish landscape.
Nowhere has this been more evident than in the performance of the Northern Ireland housing market. Statistics testifying to this abound from myriad sources, but it is well worth dwelling on the key highlights from a few of them to put it into context.
Data from the Council of Mortgage Lenders (CML) for 2005 reveals some interesting facts about the market. With a population of 1.6 million, the Province accounted for just over 2 per cent of the total UK mortgage market. Nearly 26,000 house purchase loans were made for a value of £2.3 billion. This was the lowest number of advances since 1998, and reflected the general UK trend. First-time buyers accounted for 36 per cent of all advances in 2005, slightly below the UK average.
A feature of the Northern Ireland market has been its relatively steady and moderate growth. This means it has escaped some of the spectacular peaks and troughs that have occurred elsewhere in the UK. However, this has changed over the last few years, and the trend in house price movements is now starting to emulate those seen in other regions.
House price boom
Figures recently released by Nationwide show that Northern Irish house prices are booming. They reveal the annual rate of house price growth has been in double figures for the last three years and continues to accelerate. In the last 12 months, house prices grew at a rate more than five times faster than for the UK as an average.
The Nationwide’s data is supported by figures issued by the Department for Communities and Local Government (DCLG), formerly the Office of the Deputy Prime Minister (ODPM). These show that house price inflation reached 15.8 per cent by the second quarter of 2006, resulting in a mix-adjusted average house price of £142,475.
An even stronger picture is painted by the CML, which recently confirmed that the average price of a Northern Irish home had risen to £153,457 in the first quarter of this year. This means that homes are worth on average 75 per cent of those elsewhere in the UK – a third higher than in 1990 when they were worth just 49 per cent of the UK average.
The CML’s bullish picture is supported by data from the University of Ulster’s Quarterly House Price Index. Its report for the first quarter of 2006 similarly priced the average home at £153,868. This represents a 25 per cent increase – or £600 per week – over the year. It also means that the price of the average home in the Province has risen by a staggering 260 per cent since 1995.
The University’s latest Index includes survey information gathered from over 2,000 transactions involving more than 100 estate agency firms. Its authors attribute the boom conditions to strong investment activity, relatively cheap borrowing costs and an undersupply of properties.
To highlight this, the report points out that the stock of Northern Irish houses costing less than £100,000 is rapidly diminishing, and that only one-fifth of the transactions covered in the survey were in the £50,000 to £100,000 bracket. This compares with 26 per cent in the previous quarter’s survey. At the same time, over 40 per cent of all sales were in the £100,000 to £150,000 bracket.
Among specific property types, detached homes took the leading position with an average price of £237,749, representing a rise of almost 30 per cent over the year. Terraced properties and townhouses were close behind, rising almost 29 per cent to an average of £120,510.
Prices for semi-detached houses rose 23 per cent to £139,726, while those for semi-detached bungalows increased more modestly by less than 20 per cent to £131,820. Meanwhile, detached bungalows recorded an even slower growth rate of 11.9 per cent to reach an average of £184,045.
Flats and apartments have shown a variable performance over the life of the survey. The latest recorded increase of 19.2 per cent – which raised average prices to £124,814 – was significantly less than the growth rate seen in the previous quarter.
Location, location, location
Location is as important in the Northern Ireland market as elsewhere in the UK. In Belfast, the average price of a property is £145,051, up by nearly 24 per cent over the year. Prices across the property type range are performing strongly, but the highest priced location in the capital remains South Belfast with an average of £188,069.
The metropolitan area outside Belfast also performed strongly. Lisburn recorded an unprecedented rate of growth of 44 per cent, meaning that the average house price is now £188,772, making Lisburn the most expensive area.
Elsewhere, rates of house price growth varied between 14 per cent in East Antrim to over 30 per cent and 39 per cent in Londonderry and Craigavon/Armagh respectively.
Unsustainable growth
While the figures prove impressive, the authors of the survey have added a note of caution by commenting that an annual growth rate of 25 per cent is unsustainable. They point to the phenomenon of ‘pension refugees’ – individuals who see property investment as their main financial strategy for retirement – as being responsible for fuelling demand, and believe growth in house prices will cool if investment activity drops.
On the flip side, and in common with other parts of the UK, rapidly rising prices have created serious affordability challenges for first-time buyers (FTBs). This has been commented on by both the Northern Ireland Housing Executive and the CML, with the former predicting that 2006 will show a significant deterioration in affordability for new buyers seeking their first step on the property ladder.
For its part, the CML points out that FTB numbers in Northern Ireland declined by 24 per cent over the period 2000-2005 compared with just 7 percent in the UK as a whole. It is unequivocal in its view that this has been caused by house price growth outstripping earnings, and that an urgent debate is needed to address the issue of affordability.
The CML acknowledges the work being done by lenders in this regard, and points to the development of ‘graduate’ mortgages and products linked to parental guarantees as evidence of innovation. However, it has called on the government to do more, possibly through the extension of the HomeBuy scheme to Northern Ireland to work alongside existing initiatives such as the Co-ownership and House Sales schemes. This, the CML argues, could help mitigate some of the problems faced by FTBs but would need to be undertaken hand-in-hand with a measured review of housing supply.
Much to offer
Despite these concerns, Northern Ireland has much to offer intermediaries and lenders looking to expand their distribution base. Anecdotal evidence suggests intermediaries account for up to 70 per cent of all new mortgage business – similar to levels elsewhere in the UK. Among lenders already active there are the traditional UK bank brands, their local counterparts and a number of established specialist lenders. Others, like Money Partners, are considering entering for the first time. However, this may not be as straightforward as first appears.
One possible obstacle is that relating to the system of charge registration on unregistered land. Unlike in England and Wales, a lender does not enjoy the protection offered by a ‘priority period’ within which to register. Without this the lender is effectively in a race to the register their interest in the property against any other lender who happens to advance secured credit at the same time. And while a similar issue prevails in Scotland, it is more acute in Northern Ireland because unregistered land is still relatively common in the Province, possibly accounting for more than 30 per cent of all land.
Looking to the future, it appears almost certain that the rapid growth in house price inflation will slow. This will be encouraged by further economic normalisation, a rising regional tax burden and job losses in the Province’s heavily-staffed public sector. Some fear this may result in a dramatic crash, but others take comfort from what is happening in the rest of the UK. Regardless, all those active in the Northern Ireland lending market, or planning to be so, should take note of the signals and prepare accordingly.
