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House prices in Northern Ireland have risen by seven times the UK average in the past year, fuelling concerns about affordability, says Harvey Jones

Brokers in Northern Ireland are beginning to wonder whether you can have too much of a good thing. Many fear rampant, English-style property inflation could bring with it English-style affordability problems and possibly even a crash.

Are they right to be edgy, or are rising prices a sign of new confidence in Northern Ireland as the Troubles gradually recede?

Recent growth has been nothing short of spectacular. Prices grew almost 27% in the past 12 months according to Halifax, more than seven times faster than the UK as a whole which rose a relatively pallid 3.7%. This rate of growth puts the buoyant Welsh and Scottish markets in the shade.

Prices in Northern Ireland have risen 57% during the past three years, which makes it only the eighth fastest growing UK region, although by far the most vibrant.

Brightest spots include Enniskillen, which grew 31%, closely followed by Antrim, which grew 21%.

But the average property still looks highly affordable to English eyes at 122,813. It cost twice as much to buy in Greater London, although the difference was 2.5 times in 2002.

Popular commuter town Bangor is the most expensive place to live with prices rising 7% to 142,660 while the average house price in Belfast rose 10% to 117,543, according to Halifax.

BBut there are signs that the property surge is beginning to ease, with prices rising a relatively modest 3.9% in the second quarter of 2005 and Halifax economists predicting moderate growth for the rest of the year as first-time buyers are squeezed out of the market.

Peter Duffy, mortgage broker and financial consultant in Belfast, says prices have been going up “atrociously” and he is regularly forced to turn away first-time buyers with no chance of funding a purchase. “In Northern Ireland we have a tradition of youngsters looking for their own place from as young as 19 years old. That is rapidly changing. Buyers are getting older and older because they can’t afford the prices anymore.”

Unemployment in Northern Ireland stands at 3.4%, higher than the UK average at 2.7%, but Duffy says it’s the type of work and level of wages that cause the problems. Traditional industries such as factories and shipyards have been ousted by low-wage work in call centres, burger bars and local government.

“The lifestyle here isn’t very good for young people. Students typically graduate with around 12,000 in debt, loans and overdrafts, then get a job in a call centre paying maybe 15,000. But there is no career progression in call centres. You work like a battery hen and get burnt out in two or three years, no nearer to buying your property,” he says.

Duffy’s 28-year old son is a senior engineer with a multinational company but earns less than 20,000 a year. “He wants to buy a house for 112,000. I’d like to arrange his mortgage but I can’t because I know he can’t afford it, even with a 5% deposit, so he has gone to another broker,” he says.

Duffy’s 23-year old daughter does own her own home, a two-bedroom terrace bought in January 2003 for 63,000. “She could only borrow that much because she worked in a Halifax call centre and got a staff mortgage. She was lucky. Now similar properties are going for 87,000,” Duffy says.

Buyers will break all the rules to get a mortgage. “I recently turned away one couple who were clearly spoofing but they got a deal from another broker instead. There are rumours of brokers providing bogus payslips and P60s to help people get mortgages,” he says.

Brokers don’t have to be outright dishonest to get borrowers, and themselves, into trouble. “If too many of their clients overstretch themselves and fail to keep up with payments, they could find themselves in trouble with the Financial Services Authority,” Duffy says. Two out of every three potential first-time buyers in Northern Ireland can’t scrape together enough for a deposit, and almost half of 21-35 year olds still live with their parents, according to research from the Ulster Bank.

Derek Wilson, head of mortgages at the bank, says buoyant house prices are squeezing young people out of the market. “Unchecked, it is likely this will result in significant problems for the housing market and the economy further down the line.”

In August, the Ulster Bank launched Northern Ireland’s first ever 100% mortgage – another import from the mainland. It is available to all first-time buyers who can afford to service the loan and applies to all the bank’s mortgage products including its new, fee-free discounted rate. The mortgage also comes with a 30-year loan term to make monthly repayments more affordable.

Halifax figures show the only place the average house costs less than 100,000 is Strabane but that barrier could be breached before long. One year ago, the average buyer in Strabane needed 77,403, now they need 91,075 – an increase of 18%.

Hugh Shaw, partner at CHS Financial Planning in Enniskillen, says Northern Ireland is entering uncharted waters and he fears the worst. “Traditionally, prices increased by maybe 5% or 8% a year. We used to look across the sea to England with amazement as prices rose by 30% but now it’s happening over here. It’s been quite a shock to the system.”

Former Northern Ireland Housing Executive (NIHE) properties, sold to their owners at a discount, are changing hands for more than 100,000. “If you told somebody that five years ago they would never have believed you. Young people can’t raise the money and are increasingly turning to their parents, who thought they were finished with mortgages,” Shaw says.

Shaw fears Northern Ireland could face the most unwelcome import of all. “We have never had negative equity but the way prices are going right now I can see it coming. That would be totally alien to us,” he says.

The average house in Enniskillen cost 88,139 only one year ago. Now you would pay 115,710. Shaw says Enniskillen and County Fermanagh are attractive rural locations and popular with retired people but he is mystified by this sudden fashionability. “It’s a quiet place. We haven’t seen much new industry or local government offices and we don’t have the largest population so I’m not sure where the money is coming from,” he says.

One source could be buy-to-let, another mainland fashion that has taken hold in Northern Ireland, but Shaw fears the rental market is now saturated. “If you look at the local newspaper there’s an awful lot of rental property being advertised. But a three or four-bedroom house will only attract around 400 a month in rent. That is fine if you bought your investment property with cash but it won’t cover your mortgage,” he says.

Remortgaging, by contrast, is slipping out of fashion, says Russell Hathaway, financial adviser at Mortgage Matters in Belfast. The recent trend among lenders charging borrowers for switching lenders has hit remortgage business in Northern Ireland hard because the average loan size remains much smaller than in the rest of the UK.

“With arrangement fees on the new deal, the client might spend upwards of 500 even if they get free legals and survey. It isn’t worth remortgaging if your loan is less than 100,000. Some of my clients would only save around 100 over two years,” Hathaway says.

Kate Peden, proprietor of brokers Mortgage & Property in Coleraine, is confident the Northern Ireland boom is built on solid foundations. “There is nowhere nicer to live. We have good schools, good infrastructure and good doctors. The north west is beautiful with attractive beaches and seaside towns such as Portstewart, Portrush and Castlerock, but property prices are still behind the rest of the UK.”

Northern Ireland is attracting investors from further and further afield. Peden was recently contacted by a prospective buyer from the United Arab Emirates while other brokers report taking calls from the US, Canada and the Bahamas, often from ex-pats who now see Northern Ireland as an attractive place to buy a second home.

Price growth in Coleraine has stalled. The average price rose only 1% in the past 12 months but at 128,803 Coleraine is still the second most expensive location in Northern Ireland, according to Halifax.

Portstewart, Portrush and Castlerock are the main draw. “There is a shortage of starter homes and people who grew up in those towns can’t afford to buy there. They have to compete with investors and people looking for second homes and holiday homes,” Peden says.

The Northern Ireland Co-ownership Housing Association has so far helped more than 18,000 people buy their own properties. Buyers take an initial share of between 50% and 75% in their homes, then buy up the remainder over time. But the scheme sets limits on property value and these look increasingly outdated.

Limits vary according to council area and property size but range from 102,500 in Coleraine to 115,000 in Belfast.

“Co-ownership desperately needs to increase its ceiling levels but there’s no sign of that happening yet,” Peden says, echoing the comments of a number of brokers.

Peden believes growth will continue but at more sustainable levels, and those who worry about the market crashing have underestimated the impact of the peace process. “There is plenty of opportunity in Northern Ireland, with lots of expansion and development. Now we are putting the past behind us we can move forward,” she says.

One town in Northern Ireland has seen a slight drop in prices in the past 12 months, according to Halifax. The average price in Newtownards, County Down, fell 5% from 125,898 to 119,193, but Vicky Alexander of brokers John Grant Mortgage & Property Services declares herself surprised by the figure. “In my experience, prices have been rising all round. This is still a buzzing place. I bought my house for 96,500 one year ago and it is now worth 105,000. Locally, anything less than 150,000 goes very quickly.”

First-time buyers would welcome a drop in prices. “There is hardly anything for less than 100,000. It’s quite frightening. If we get a property for, say, 80,000 or 90,000, the bidding is extortionate and first-time buyers have to compete with investors,” she says.

But struggling youngsters can partly blame themselves. “Many haven’t saved up for a deposit – there is simply too much for people to spend their money on these days,” Alexander says.

Aiden O’Connor, broker at The Mortgage Shop in Londonderry, where prices have risen 14% from 90,770 to 103,641 in the past 12 months, says this is still ridiculously cheap for people moving into the province from England. “A client couple of mine just sold a flat in London for 25,000 less than they had hoped, but they have 220,000 to spend and that will buy them a four or five-bedroom detached house in one-third of an acre over here. Locals are the ones who are struggling.”

With the average house costing an extra 300 every week, Alan Bridle, Bank of Ireland’s head of research in Northern Ireland, says everybody is asking whether this can continue. His reply is confident. “The answer is definitely yes. The local economy will see steady growth again this year, interest rates are likely to remain stable and the buoyant investor market is offsetting lower numbers of first-time buyers.”

Chancellor Gordon Brown’s doubling of the Stamp Duty threshold to 120,000 has had a greater impact in Northern Ireland than on the mainland. “Last year, we estimated about 10% of houses were exempt from Stamp Duty. Under the new rules this could rise to about 65%, which means savings ranging from 600 to 1,200,” Bridle says.

But in his office in Belfast, Peter Duffy sees a more worrying picture. “Some lenders are helping people get on the ladder by offering interest-free mortgages for the first three years but if you can’t afford to repay the capital at the beginning, can you afford to do that later? You need a pay rise, but what sort of pay rises do call centre workers and hospital porters get?”

Buy-to-let investors are over-optimistic and getting their sums wrong. “I saw one lady last week buying a two-bedroom apartment in a low-grade area of Belfast for 78,500. People in England might think that’s cheap but I know the area and believe me, it isn’t. Two years ago that flat would have cost around 47,000. Her estate agent told her she would earn around 400 a month in rent but I spoke to an agent I trust rather more and he told me she would be lucky to get 320,” he says.

Too much of his remortgage business is for people who can’t manage their commitments. “Debt problems are becoming commonplace. I see more and more people getting into trouble. I don’t know how long this can be sustained,” Duffy says.

Rampant house price rises, struggling first-time buyers, over-optimistic buy-to-let investors, 100% mortgages and talk of negative equity… The property market in Northern Ireland is looking increasingly like the rest of the UK. l

Political stability will bring benefits to all

Mark Bonshor is northern sales manager for First National The housing market in Northern Ireland is extremely strong at the moment. House prices have grown considerably, rising by 26.9% in the past year, the fastest increase in the UK.

Northern Ireland has its share of property hotspots. For example, Belfast was once the cheapest place to buy in Europe. As demand has increased, prices have risen. In recent years, many Belfast sectarian estates have been redeveloped to cater for young professionals. The most popular area is currently County Fermanagh which has seen a 31% increase in the past year, the biggest rise in the UK. Strabane is the most affordable location, with average prices around 91,000.

The political situation in Northern Ireland undoubtedly has had a knock-on effect on the property market. House prices have been forecast to rise significantly on the back of the recent IRA announcement. Property prices have been rising by around 10% a year but they could now really take off if investment, previously hindered by the political uncertainty, starts to flow. It is anticipated that political stability will encourage yet more businesses to locate their premises in Northern Ireland which will undoubtedly fuel growth.

Lenders and packagers from the mainland have been drawn to Northern Ireland as a consequence of the buoyant market and their view is that economic and political stability will be evident for the foreseeable future. Many see it as vital to their distribution strategy. It also enables them to provide truly national coverage.

The outlook for the province and its housing market is good and, with growing political and economic confidence, expect housing and economic growth into 2006 and beyond.

Still room for buy-to-let growth in NIJohn Rattigan is compliance director of CartelNorthern Ireland is experiencing a decline in the number of homes available through social landlords and significant changes in demographics coupled with poor returns on equities suggests there is still room for the buy-to-let market to grow. Many specialist lenders are recognising this.

Despite signs it may be becoming saturated in certain areas, potential for growth is strong in some places seeing high levels of housing demand due to general economic trends. These include areas such as Belfast – where extensive regeneration schemes have meant a dearth of new apartments built in recent years – and Londonderry. But brokers should be aware of some major differences in legislation and administration for both private landlords and mortgagees.

The average house price in Northern Ireland remains approximately 40,000 lower than in England although average house prices for South and East Belfast are more on a par with their English counterparts. Northern Ireland – particularly the major cities of Belfast and Londonderry – and Scotland have been the only areas in the UK to have seen double-digit increases in house price inflation in recent months, according to figures from the Office of the Deputy Prime Minister released in August. These show house price inflation in Northern Ireland rose to 14.3% from 9.3% from May to June. The recent cut in interest rates together with lower unemployment, an increased number of stable jobs in the public sector and wage increases is set to keep the already buoyant housing market in Northern Ireland afloat.

As the number of first-time buyers continues to fall, affordability is becoming a concern to the Northern Ireland Housing Executive. This concern has been fuelled by rapidly rising house prices, particularly considering that many typical first-time buyer properties are now struggling to stay below 100,000, except in north and west Belfast.

Strong price growth might be tempered by FTB affordability issuesMartin Ellis is cheif economist at HalifaxHouse prices in the province have seen strong growth, rising by 26.9% over the past year, the fastest rise in the UK. Although the 3.9% rise in prices for the second quarter is above average, it is lower than increases seen in the second half of 2004, highlighting that the market may now be starting to slow. It seems likely house price growth will moderate during the rest of 2005 as first-time buyer affordability issues temper demand.

The average house price in Belfast is now 117,543, an increase of 10% in the past year. The combination of jobs, schools and amenities continues to make Belfast one of the most desirable places to live in Northern Ireland, it says.

New build activity in inner Belfast is limited but properties released appear to be selling well. Recent successes include new apartments in Ormeau and Ravenhill, which are benefiting from new entertainment and leisure facilities, and Andersonstown. Added to this, the first-time buyer market in Ballyhackamore to the east of the city remains buoyant.

Percentage house price changes in NI over the past year
Specialist lenders consider moving in
Tim Sturley is business development director at Mortgage Express – Lending in Northern Ireland broadly reflects lending in mainland UK, with a few notable differences when it comes to social housing and legislation. With its relatively small population – around 1.7 million, or 2.7% of the UK according to the Office for National Statistics – over the years it has been a valuable testbed for lenders wanting to try out their strategies and products before launching them nationwide.

Whether home owners will be able to pay for their properties is an issue so the Northern Ireland Housing Executive, along with the Council of Mortgage Lenders and the University of Ulster, has studied affordability. Its findings show that, as with the rest of the UK,although house prices have increased steadily over the years before slowing over the past few months, affordability is not an issue for most home owners. As always, first-time buyers tend to suffer most – they are simply unable to afford to live in the prime locations and so have to compromise on choice of property or location.

A co-ownership scheme has helped a small number of people to get on the property ladder and the Housing Executive’s Right to Buy initiative has also assisted those on lower incomes.

Naturally, the private rented sector has a part to play in ensuring there is an adequate supply of housing. As in the UK, renting is becoming viable for those who can’t yet afford, or don’t want, to own their own property, so buy-to-let is a growing market.

As the profile of borrowers in Northern Ireland reflects that of the rest of the UK – barring some minor cultural differences – a growing number of specialist lenders are showing an interest in setting up business in the province, alongside the mainstream banks and building societies that have always had a presence.


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