The North South divide shows no sign of disappearing anytime soon as Hometrack released their quarterly house price index.
And it seems that the north is finally taking a lead, with house prices in southern cities seemingly taking a dip in July's figures.
House prices in Manchester saw a 3.4 per cent rise in the three months to July, with a year on year increase of 8.4 pc.
This is believed to be in part due to the fact that 'prices are rising of a lower base' as well as 'record low mortgages'.
If you add 6.5% average gross yield on top of the capital appreciation of 8.4% for Manchester, you get 14.9% total return.
In London, the capital gain 11.7% + 3.5% = 15.2% total return. It's about the same. But the last quarter return showed Manchester in the lead in terms of capital appreciation (3.4% vs London's 2.1%). That's 1.3 percentage points lower per quarter, annualised 5.2 percentage points, and another 3 percentage points lower for rental yield. London is losing out by 8.2 percentage points a year. If Manchester outperforms London by four years, you will get 32.8 percentage points difference. Now that's a great divide.
Conclusion
I look at several trends before investing:
- Starting point net yields after deducting expenses, or Net Operating Income (NOI).
- I look at mortgage borrowing cost and the spread between NOI and borrowing cost.
- job creation in the city. How many industries are thriving in the industry. Is it a city dependent on one single sector (Aberdeen)? I will avoid that.
- on coming supply. I check housing starts. It should not be more than the household formation.
- Median price of house over median income. Is it affordable? This is paramount as if the majority of the people cannot get mortgages or pay cash for a property, the median price is bound to stagnate. Couple that with overs supply and falling rents, like in Singapore and Hong Kong, prices are likely to tumble.
