Land values, house building and Brexit have all disrupted the traditional North/South property divide. Jay Patel, lending director at Wellesley Finance, explains why this is a great opportunity for property lenders…
ONCE UPON A TIME, the North/South divide was one of the few certainties in the UK’s property market. Historically, properties in London and the South East (SE) were in higher demand and sold for higher prices, while in the Midlands and the North West (NW), property values were much lower.
But over the past few years, there has been a marked shift in the UK’s property market. The government’s Help to Buy Scheme has led to a rise in affordable housing across the country, while at the same time rising land values and a dearth of prime sites has pushed property developers outside of London and into the regions of England.
Wellesley was one of the few alternative lenders to anticipate this shift.
“In the early days the focus was on London and the SE,” says Jay Patel, lending director at Wellesley Finance. “But regional centres such as Manchester in the NW, Bristol in the West and Birmingham in the Midlands have strong local markets and a need for quality but reasonably priced housing.”
Since 2015, Wellesley has focused on lower-cost housing and in this segment of the market there is very little difference between the NW and the SE.
“There is not really a North/ South divide in terms of lower-cost housing as it is in short supply across the UK,” explains Patel. “What varies is the land values in different regions which impact the end price of the new houses, but this variance is also reflected in the salaries and so affordability does not vary as much as one might expect.”
Furthermore, the type of housing does not vary significantly between these two regions. Patel says that Wellesley tends to fund those developers who build mainly one and two bed flats in larger developments, which means that the core product does not vary much from region to region.
“What counts is affordability, and this is driven by the local economy in terms of salaries and the demand for housing,” says Patel. “When Wellesley started to diversify its business in 2015, we identified that there was a shortage of product in the NW and strong demand for lower-priced housing, whereas London looked stretched in terms of affordability.
“Today the developments coming on stream in the NW are starting to address the under-supply whereas the SE is looking more attractive again, particularly as many buyers in London are prepared to look a little further afield for value.”
Wellesley has approximately 23 per cent of its developments in the NW at present, and 25 per cent in the SE, but only 12 per cent in London. This is a split that Patel is happy to maintain – at least until after the UK’s official withdrawal from the EU.
“The uncertainty of Brexit has been a cloud on the horizon,” warns Patel. “Property investors hate uncertainty more than anything else, but I think that once Brexit is behind us there could be more certainty in areas such as London again.”
Until then, there are plenty of opportunities for savvy property lenders and investors alike.