Where houses will best hold their value

The areas that fared best during the last housing crash – and what will happen now. By Arabella Youens

Is it 2008 all over again for property prices? As the cost of borrowing soars, demand for homes is falling and buyers are routinely slashing 10pc off their asking prices.

Those who watch the housing market closely will tend to judge the risks of today by looking back to patterns of downturns past.

It is why analysts are now asking whether the pattern of current falls mirrors that of the early 1990s or even the financial crisis.

Their findings make for interesting reading and, crucially, help to identify the areas where homes are most likely to retain their value as the market turns.

Oxford Economics, a think tank, has assumed that unemployment peaks this year will be lower than in previous recessions. This is likely to contain the risk of repossessions that featured prominently in the early 1990s. Tougher mortgage regulations brought in after the more recent financial crisis (which stress-tested borrowers’ ability to afford the prevailing standard variable rate plus 3pc) are designed to help stem any tide of repossessions.

“Overall, this will see a trickle of additional stock coming to the market from those under financial pressure, rather than a deluge,” says Lucian Cook, of the estate agents Savills.

The company has forecast a 10pc fall in average UK house prices this year, but a recovery by 2026 as affordability pressures ease. In figures published in November last year, it predicted values in London and the South East to experience the largest falls in the short term and have the weakest five-year performance. The prime markets, such as prime central London, will see smaller falls and outperform over the five- year period. It said housing markets outside the capital, where mortgage affordability is least stretched, will be the strongest performers over the next five years.

This broadly echoes the pattern that emerged after the 2008 financial crisis, where areas that had risen the fastest in value fell the most. Historic house price data show average prices dropped by 18pc, taking 18 months to recover. Northern Ireland experienced the largest price falls of as much as 45pc. They took more than three years to start to recover, not showing signs of growth until December 2010 – the longest time for all the regions to recover by a large margin. This is where prices had been rising most before they fell.

After that, it was predominantly outer-London commuter belt areas where prices dropped the most, including the neighbouring districts of Colchester and Tendring in Essex. “Typically, homeowners in these locations had larger levels of debt, and many of these middle and top- end workers were also subject to job losses – a bit of a reversal compared to Covid when job losses predominantly occurred at the less affluent end of the scale,” says Aneisha Beveridge, of estate agents Hamptons.

The areas that bucked the trend and where prices fell the least were typically those with low levels of house sales and purchases, often with slightly older populations and therefore lower levels of debt. Eight of the 10 local authorities that saw the smallest peak-to-trough price falls at the time were in Scotland. “Generally, these sorts of areas weather any crisis a little bit better than most, predominantly because there are more discretionary, rather than needs-based moves, and so households tend to sit tight,” adds Beveridge.

The top five areas where prices held up best after the credit crunch and could do so again

OVERALL WINNER: SCOTLAND Prices fell by 13pc over 18 months, compared with the 18pc national average over the same time

Scotland dominates the top 10 list of areas where prices fell the least by some margin. Top of the list of areas that fared the best comes Moray, a county in the north-east of the country which takes in the towns of Elgin and Forres and parts of the Cairngorms National Park. Property values fell by 8pc between 2008 and late 2010 before they started to rise again. Surrounding areas of Aberdeenshire, North Lanarkshire, Highland and Falkirk all fared similarly.

The notable exception was prices on the Orkney Islands which, while they fell 12pc from peak to trough, recovered quickly, taking and only three months to start rising again. In Moray it took more than two years for values to grow. “It’s no secret that Scotland has long represented value for money,” says Kevin Maley, of the estate agency Strutt & Parker. “There’s a big difference from purchasing a property in prime central

London to in a remote area in the Highlands. It means that the market is protected to some degree, even post credit crunch. I’ve worked in the area for the last 15 years and we aren’t immune to market changes but the peaks and troughs have certainly been less pronounced.

“The areas where you get the most bang for your buck is where values tend to hold up the most – the Moray coast being one of them. It also helps that it is a truly beautiful part of the world, with beautiful expanses of coast, undulating landscapes and the Cairngorms on your doorstep – it’s hard to think why demand would ever slump there.”

NORTH EAST Prices fell by 15pc peak to trough over 19 months

Property prices in Redcar and Cleveland, Sunderland and Middlesbrough fell the least in this region although it took well over two years for them to start growing again, and longer than that in many other areas. Those in South Tyneside fared the worst: property prices dropped by 20pc in the area which takes in South Shields and Jarrow, alongside a coastline that forms parts of the backdrop of the annual Great North Run.

INNER LONDON Prices fell by 17pc peak to trough over 18 months

The only London borough to feature in the top 10 of areas that weathered the storm, values in Westminster fell by just 8pc between their peak in December 2007 and the trough in May 2009.

Overall, in inner London, average values dropped by 17pc and it took 18 months before they started to climb again in May 2009. Prices have already begun to fall in Westminster, according to Garringtons, a property search agency. The borough was revealed as Britain’s most unaffordable property market in a report from building society Nationwide, published in January this year. It found that the average home costs 15.6 times the average resident’s salary.

YORKSHIRE & THE HUMBER

Prices fell 17pc peak to trough over 15 months

Three neighbouring districts North Lincolnshire, Doncaster and Wakefield were the stand-out areas of this region. The areas, which lie south and south-east of Leeds, saw property values dip by 16pc but it took less than 18 months for them to start recovering – the fastest of all the regions.

NORTH WEST Prices fell by 17pc peak to trough over 15 months

West Lancashire takes the top spot for weathering the last property downturn, the best of all the areas in the region. The rural district covers the area west of Wigan, north of St Helens, east of Southport and south of Preston. The largest town is Skelmersdale, or “Skem”, one of the very first “new towns” built in the 1960s. Overall, values dropped by 11pc but it took only seven months before they started climbing again.

‘It’s no secret that Scotland has long represented value for money’

Scotland Prices fell by 13pc over 18 months from 2008 to 2010