The housing market might be shooting up at breakneck speed in Wales, Scotland and the north of England but growth in Northern Ireland appears more modest and sustainable.
Prices grew at a “steady but unspectacular” 8.6% in the 12 months to April, reveals the latest quarterly house price index from the University of Ulster, with the average property now costing £106,574.
Alan Bridle, economist at the Bank of Ireland which helps produce the report, hails the figures as good news for the province.
“Developments in the housing market on this side of the Irish Sea appear somewhat semi-detached from the frenzy in Great Britain and we should take comfort from that,” he says.
The impression of a slowdown is reinforced by figures from the Office of the Deputy Prime Minister which show annual property growth in Northern Ireland falling from 7.6% in March to 5.5% in April. Compare this with runaway growth of 21% in Scotland and 23% in Wales.
But these headline figures obscure a more complex picture with some areas booming and others sagging – and a growing feeling that buy-to-let is running run out of steam.
South Belfast is now the most expensive place to live in Northern Ireland with the average property costing £127,987, closely followed by Lisburn where properties are just £450 cheaper, says the University of Ulster index. But across the city in north Belfast the average price is just £84,567, the cheapest in the province.
The most expensive areas are seeing negligible price rises. The average annual Belfast property price grew 5.74% to £105,037 but that in Lisburn grew just 1.72% while elsewhere in the Belfast commuter belt prices in East Antrim rose just 2.41% and those in North Down, 2.21%.
Helen Martin, regional manager for The Mortgage Advice Shop which has seven branches across the province, says former hotspots are now simply too expensive for many people.
A growing number of people are remortgaging to extend their homes because they can't afford to move, or are decamping to the city outskirts and the countryside where homes are more affordable.
“People in Northern Ireland don't like to commute but you can live in, say, Portadown and be in Belfast in 45 minutes and that's what people are starting to do.”
Martin says first-time buyers are shifting their searches to less desirable areas such as Craigavon, Lurgan and Portadown where entry-price terraces cost around £65,000. This has led to dramatic house price rises in these areas with the average property in Craigavon growing in price by more than 20% to £107,315 over the past year.
The problems facing first-time buyers aren't as acute as in many parts of the mainland. While the average first-timer in South-East England typically needs 48 months to save a 5% deposit, in Northern Ireland the wait is just 33 months, figures from National Savings show.
Buyers can also get a leg-up from the Northern Ireland Co-ownership Housing Association which has helped 18,000 people buy properties in the past 25 years. Under the scheme homeowners buy 50%, 62.5% or 75% of the property's value, paying rental on the remainder. They are free to increase their share at any time in a process known as staircasing.
Financial support from parents and interest-only mortgages are just some of the tricks first-time buyers are having to pull to get a start in the market.
Norman Mawhinney, broker at The One Stop Mortgage Shop in Belfast, has seen demand for 100% mortgages grow. “We sometimes use these for young professionals who have the potential for good earnings growth but single people earning less than £12,000 have no alternative but to rent,” he says.
“They simply can't afford to pay £80,000 for a home. Growth is slowing but few expect prices to drop so many will continue to struggle to get onto the ladder.”
As elsewhere in the UK, first-time buyers and buy-to-let investors are competing for the same properties. But there are early signs that buy-to-let is coming off the boil in the province and this could offer some hope to first-time buyers.
Gordon Boal, branch manager in Belfast for lender Irish Permanent, says property prices have risen to the point where rental incomes can no longer cover new borrowings on the buy-to-let scheme. This month's base rate increase will make the calculation even less favourable.
Valuers in Northern Ireland typically set a conservative rental income and lenders won't go beyond that figure. Increasingly, borrowers who need the maximum 85% LTV are struggling to cover their capital outlay.
“Property prices are rising but rentals are starting to fall,” says Boal. “Many people can still afford to get a start through co-ownership schemes which means that nobody is going to pay more than £500 a month on rental.”
The best deals for investors are ex-local authority houses which can be bought for less than £60,000 and attract a decent monthly rental income of around £350.
“Otherwise you'll be spending up to £100,000 on a property but only getting an extra £50 in rental income per month,” Boal adds.
Many investors saw Belfast as the next Dublin, Cardiff or Leeds and poured money into the city centre apartment developments shooting up throughout the city but Boal says many of these are now sitting empty.
“They are being sold but getting tenants is a different matter. There is definitely an over-supply of this type of apartment right now and rental incomes aren't rising any more.”
Little surprise then that demand for apartments in Belfast is slack with prices rising just 1% over 12 months to £98,752.
Towns such as Portadown and Lurgan offer better yields and Boal says wise landlords are building portfolios of £50,000 or £60,000 ex-council houses which offer a better yields than a £140,000 Belfast apartment.
If landlords struggle to cover their mortgages and start to offload their properties a wider property slump is a possibility.
“People are looking to property to shore up their pensions but if base rates keep going up landlords with empty properties will have to sell,” adds Boal.
Most brokers report that the first three base rate increases did little to quell demand but the latest may have an impact and future increases will definitely squeeze prices.
But Alan Bridle at Bank of Ireland remains confident that Northern Ireland is far from a slump.
“Even though interest rates are likely to rise further this year they would have to almost double from their current level before borrowers face the same pain as they did in the late 1990s,” he says.
Aiden O'Connor, broker at Londonderry-based Eglinton Mortgages & Investments, says local developers are increasingly reluctant to let investors snap up a large number of properties on new housing estates.
“Buyers prefer to be surrounded by owners rather than tenants and developers are responding to this by selling to first-time buyers rather than investors.”
O'Connor has six buy-to-let deals on his books at the moment but agrees the market has now reached its peak.
“The maximum rent you can get round here is £450 a month,” he says. “That's enough to cover a £90,000 property on an 85% LTV but once you pay more than that you are starting to get into troubled waters.”
Base rate increases have helped generate remortgage business without dampening demand but a couple more rises will start to bite.
“The experts are predicting 5.5% by next year and that's when we'll really see people holding back,” he adds.
Tim McLennan, broker at the Independent Mortgage & Insurance Centre in Coleraine, has been doing similar calculations. Coleraine is surrounded by attractive coastal areas such as Portstewart, Portrush, Castlerock, Portballantrae and Bushmills, whose populations can double in the summer months. Local demand for investment properties is outstripping the relatively low supply.
“Buy-to-let has been slowing down lately and the most recent rate rise will make a difference,” says McLennan.
“Typical rental income is around £450 a month and this makes the figures very tight. You won't get the return on a £100,000 house unless you have a large deposit – which most people don't.”
Investors have been snapping up more than half of the new developments and if they pull out it could affect the whole market. Many are starting to ask why they have to pay so much in Northern Ireland.
“Investors who can't afford Coleraine are looking much further afield to Canada, the US, Spain, Poland and Turkey where prices are cheaper. A two-bedroom property will cost £75,000 here but just £55,000 in Turkey. And hopefully the capital appreciation will be higher.”
MacLennan says the good news is that if prices do fall, first-time buyers are waiting to pounce and this should help shore up prices.
Trevor Johnston, broker at Mortgage Choices in Coleraine, has seen prices rise by up to 40% locally since opening his business a couple of years ago. Smart two-bedroom apartments are now fetching up to £135,000, three-bedroom bungalows up to £140,000 and three-bed houses up to £190,000.
Low interest rates have played a part but local factors have also powered the market forwards.
“There has always been a strong desire to own your own home in Northern Ireland, plus we also have a strong buy-to-let student rental market and in Portrush on the coast, a second home and retirement housing market.”
Recent interest rate increases have done little to stem demand beyond reviving interest in fixed rate deals and Johnston doesn't expect them to make an impact until they hit 5%.
“The only place I see prices slowing is at the top end of the market – for houses costing more than £200,000,” he says.
“Otherwise, there are simply too many people wanting to buy a house for the market to collapse, especially while the economy remains strong.”
Russell Hathaway, broker at Mortgage Matters in east Belfast, says rising interest rates have slowed his remortgage business and lenders withdrawing competitive remortgage deals have made matters worse.
“Lenders seem to be dropping fees-free deals at the same time as rates are rising so clients don't always make dramatic savings. Fixed rates are looking attractive once more with people taking the hit now on the assumption they will benefit in six months' time.”
With loan sizes typically lower in Northern Ireland than elsewhere in Britain, many homeowners are happy to remortgage to save £10 a week. “You always find some people stuck on their lender's SVR who should remortgage. I recently saw one client who had been paying variable rate for 19 years and didn't even know remortgaging existed. I had to break the news very gently,” Hathaway says.
Aileen Mackle, general manager at UK-based packager Solent Mortgage Services, says rising interest rates and growing personal debt in Northern Ireland have boosted its sub-prime business.
“We are seeing growing numbers of people with defaults on credit card payments who are remortgaging for debt consolidation, doubling our business in the past year.”
Solent Mortgage Services has an office in Newry, five miles from the Republic of Ireland, and attracts buyers from south of the border looking to exploit cheaper property prices.
“They are snapping up properties in the £70,000 to £100,000 bracket which is exactly the market first-time buyers are looking at,” says Mackle.
Solent is one of the UK few packagers to have a regional office in Northern Ireland and Mackle says it has benefited from having a physical presence in the province. “The financial world in Northern Ireland is quite small and brokers like to know who they are dealing with. Most UK packagers don't have an office here which gives us the opportunity to build a personal relationship with local brokers. It gives us an edge.”
Solent is also one of the few to lend on the co-ownership scheme through its branded lender Trafalgar and has benefited from offering sub-prime loans to buyers in this expanding market.
Despite the general perception of a slowing market, prices are bubbling confidently along in some regions of Northern Ireland. Mid-Ulster saw strong growth of 17.2% during the past 12 months, with prices rising to £112,804 while Enniskillen, Fermanagh and South Tyrone all enjoyed 21% leaps to £113,775.
One broker I contacted in Enniskillen was far too busy arranging mortgages to speak to the press. He declared himself “busier than a one-armed taxi driver”, and promptly hung up.
If property price rises are set to slow as Bank of England governor Mervyn King recently predicted, Northern Ireland may be leading the way. So far, easing prices have caused little anguish and should prove good news for those currently excluded from the market.
Many will be hoping that the rest of the UK will similarly enjoy a period of steady but unspectacular growth.
Craigavon will be this year's housing hotspot
Paul Fincham, spokesman, Halifax Offering some of the most affordable housing in Britain, the Northern Ireland housing market remains strong with house prices 21.9% higher than a year ago (UK average, 19.1%.) The average price is now £93,692 (below the UK average of £154,304.) The market in Northern Ireland continued its growth in the first quarter of 2004 after a good 2003. Across Northern Ireland the yearly change in house prices was 21.9% – higher than the UK average – but it remains one of the most affordable places to buy a property. Halifax expects continued demand for property and steady house price inflation during 2004.
Despite the region's high level of demand fuelling price rises more than half of the towns in the province remain affordable for first-time buyers whereas in the UK as a whole more than 80% of towns are now beyond the reach of FTBs (Source: Halifax First Time Buyer Review, March 2004.) However, as demand outstrips supply it also means that those already on the housing ladder are reluctant to put their properties on the market until they have found somewhere to move to.
At a county level Londonderry has seen the greatest rise in prices over the past year. Buyers are paying 26% more for their homes than they were during the first quarter last year. County Down remains the most expensive place to live in Northern Ireland with the average home costing £134,508 in the first quarter of 2004, a 21% rise on the first quarter of 2003.
The market in Belfast remains busy although lack of supply is creating certain problems. First-time buyers are struggling to enter the market as prices rise while owners are seemingly reluctant to put their properties on the market until they have found somewhere to move to.
In Coleraine the picture is similar with those looking to move delaying the marketing of their property until they find somewhere new. The lack of properties at this level is causing a bottleneck further down. When they do come on to the market, properties up to £100,000 are selling well. A number of new developments could be the key to the supply issue and the release of phases will excite much interest.
In Ballymena, properties below the £100,000 mark sell well but the market is slow. This is different from last year when there were lots of buyers and lots of properties. Again new developments in the area will improve supply.
Craigavon, with its relatively low house prices, is likely to be the hotspot in Northern Ireland this year. Currently demand is far higher than supply and the redevelopment of many areas is likely to prove popular. In addition, the proximity of this area to Belfast and Lisburn is creating a ripple effect as more people are priced out of markets in the big cities toward more affordable housing within commuting distance.
The area's mini-boom won't last much longer
Kevin Paterson, managing director, Park Row Independent Mortgages Northern Ireland must make hay now as its current housing market mini-boom won't last much longer.
Unlike many parts of Britain, Northern Ireland remains quite affordable for first-time buyers. However, it's anybody's guess how long this will continue as demand continues to outstrip supply, pushing up prices. The recent interest rate rises have had little effect as regards cooling the market with remortgages making up the largest percentage of mortgage business.
The scourge of second home and holiday home buyers is now starting to take hold in Northern Ireland as it has done in Wales and I doubt the social effects will be much different, forcing up prices in rural communities and pricing locals out of the market. This trend has been fuelled by the low-cost carriers' cheap air fares to the province and the shifting relentless for the next nearby affordable holiday home purchase.
At the moment there is a reasonably buoyant buy-to-let market but as prices go up, yields will be squeezed.
Because of its slow start many homes in Northern Ireland are still within the reach of most first-time buyers. However, it won't be long before this trend is reversed and first-time buyers find themselves priced out of the Northern Ireland market.
Housing market rising at a sustainable rate
Northern Ireland's housing market is growing at a much more sustainable rate than the rest of Britain, with the cost of the average property going up by 8.6% in the first quarter of 2004.
Figures from the University of Ulster's quarterly house price index show that the overall average price of residential property in the first quarter of this year reached a new high of £106,574, up just over 2% on the previous quarter, although there were strong regional variations across Northern Ireland.
The report, for the period January to March, is based on a sample of 1,921 open market transactions across the range of house types in what is traditionally a quiet time of year for house sales.
The most expensive place to buy a house is south Belfast with an average price of £127,987, closely followed by Lisburn. Meanwhile the most affordable location is north Belfast where the average price is £84,567.
The authors of the report – Professor Alastair Adair, Professor Stanley McGreal and Suzanne Allen – say the current state of the housing market contrasts with the more volatile rates of growth seen in previous years and with other parts of Britain where house prices are still increasing at a significant rate.
They add: “Our main conclusion is that the local housing market has remained relatively vibrant across most sectors. The 8.6% increase in the first quarter fits the pattern of price growth we've been observing in our recent reports.”
Summary of the market in Northern Ireland
House prices in Northern Ireland have risen by 276% since the beginning of 1983, from £24,900 to £93,692 in 2004 Q1.
During 1983-2003 house prices in Northern Ireland increased at an average rate of 6.4% per year.
There was no boom and bust cycle in house prices in Northern Ireland during the late 1980s and early 1990s.