The Welsh property price boom continues unchecked with the UK's biggest house price increases during the past 12 months – up by a whopping 57% in some areas.
Wales has effortlessly outstripped most of the UK, boasting four of the top 10 counties with the biggest gains in property prices. In Gwynedd, prices rose by a stonking 57%, closely followed by the former county of West Glamorgan at 56%. The former counties of Mid-Glamorgan and Dyfed both saw rises above 30% according to Halifax.
Swansea is the runaway Welsh hotspot with 55% property price growth in 12 months. Nationally, only Hartlepool and Darlington fared better.
The question on everybody's lips is: where will it all end? Wales escaped serious fallout from the last housing market crash primarily because it didn't share the runaway house price inflation seen in London and the South-East. But with dramatic price rises leaving locals breathless, could it be different this time around?
Jim Harrison, partner at Swansea-based brokers Harrison Mortgages Strategies, says prices are rising faster than at any time in his 30 years in the industry. “London property trends typically work their way down the M4 corridor moving through Reading, Swindon, Newport, Cardiff and Bridgend before finally reaching Swansea. We usually experience ripples and wavelets rather than dramatic peaks and troughs so the last 12 months have been highly unusual.”
Three-bedroom detached houses in the posh western districts of Swansea, costing £75,000 just 18 months ago, now go for £130,000. Even in less salubrious areas buyers need a minimum £70,000 to get a start in the housing market.
English buyers can no longer waltz across the border expecting to snap up seaside bargains. “The top end of the market, particularly the scenic Gower Peninsula, has shocked buyers from the South-East,” says Harrison.
“A semi-detached seafront property recently went for £500,000, while five-bedroom and three-bathroom properties cost between £750,000 and £950,000.”
Cardiff set the Welsh property boom going and Garth White, principal at Friendly Independent Mortgages, says it continues to rattle along nicely.
“A penthouse flat recently sold off-plan for £460,000 is rumoured to be going straight back on the market as the first £1m flat in the country,” he says. “The majority of new developments are 90% sold on the first day. It's like a bunfight. People keep asking when it all end and realistically it must, but I don't expect a crash.”
In part, all this is simply catching up. “Cardiff was always underpriced,” adds White. “It's a wonderful city and lots of industries and businesses are relocating here. Prices did need to reflect that.”
Buy-to-let is inevitably buoyant in the university town though growing competition means that landlords have struggled to fill rundown properties. “These have come back onto the market but are quickly snapped up by developers and investors who are prepared to do them up and rent them out.”
But White acknowledges that Swansea has now taken Cardiff's crown as the country's boomtown. “In Swansea, unless you have a mortgage already in place lenders won't accept your offer because the next person through the door will snap up the property. It's that buoyant.”
Paul Fielding, proprietor of brokers Cambria Financial in Porthcawl, on the coast between Cardiff and Swansea, says the property shortage is driving up prices everywhere within a 50-mile radius. “The average two-bedroom starter home has risen more than £20,000 in the last year to £97,000,” he says. “It's bonkers. Even ex-local authority properties have doubled in value in the past two years to around £100,000.”
Elderly people retiring to the seaside have fuelled demand. “Local people are trying desperately to stay in the town they were born in and are snapping up anything that comes up before it gets too expensive,” adds Fielding. “Estate agents are complaining they don't have enough properties on their books.”
Fielding says the last two interest rate rises have achieved little except to persuade a handful of clients to switch to fixed-rate mortgages. The market needs to slow down but he expects it to avoid a crash. “There are some 800 new houses earmarked for Porthcawl in the next 10 years which should help matters in the medium term. But that won't slow the market today.”
The only place showing evidence of a slowdown is Cardiff where buy-to-let landlords are struggling to earn sufficient rent to justify the high price they paid for their investment property. “Many are offloading their properties but this isn't enough to satisfy demand because they are being snapped up by first-time buyers. If 100 rental properties came on the market, you would have 500 people waiting to buy them.”
The factors forcing property prices up in Wales are the same as elsewhere in the UK – economic growth, low inflation, stable interest rates, high employment, and of course a shortage of properties. Buy-to-let has also played a major role, with demand both from local landlords and investors from South-East England.
And again as elsewhere first-time buyers are being priced out of the market. The average house in Wales now costs 5.31 x the annual salary for the average first-time buyer, according to salary database Payfinder.com, compared with 5.83 in the South-East and 6.84 in London.
The average Welsh house price grew 32% in the past 12 months from £87,238 to £115,287, according to figures from local building society Principality. But the average wage is just £21,398, which means someone buying a home on a multiple of 3.5 x income would need a deposit of £40,394.
Mick McGuire, director of service at Principality, says Welsh property has traditionally been affordable, particularly in rural areas, but this is no longer the case. Cardiff may be slowing but Swansea and Bangor remain “exceedingly strong” and the society expects prices across Wales to grow faster than in the rest of the UK for the rest of the year.
Growth has been fuelled by the ready availability of low-cost mortgages combined with strong demand for a dwindling supply of property. Despite threatened interest rate rises, most new borrowers approach the Principality looking for low-cost discounted rates rather than the safety of a fixed rate, risking storing up problems for the future.
“The longer the market surges, the harder the ultimate landing,” says McGuire. “Prices simply can't go up 20% to 30% a year for much longer.”
Principality's ability to help first-time buyers is constrained by the need to lend responsibly. Its maximum lending limits remain 3.5 x single and 2.5 x joint salary to protect against future rate rises. “Families have to do more to help children buy property, for example parents giving them part of their inheritance while they are still alive and kicking,” says McGuire. “Lenders should take a flexible approach to parents trying to support their children through shared equity otherwise first-time buyers will be stuck.”
Ann-Marie Smith, a broker at Wrexham-based Alan Wynne Financial Services, says even former Right to Buy properties have more than doubled to £110,000 in less than two years.
“First-time borrowers are either taking higher income multiples or arranging an interest-only mortgage in the hope their income will increase so they can start repaying the capital as well,” she says. “Even next-time buyers are taking interest-only deals – particularly families, many of whom plan to clear the capital by downsizing to a smaller property when the kids leave home.”
Developers are doing little to help first-time buyers get a foothold. “They are throwing up large executive homes knowing they will sell quickly for a tidy sum. They aren't interested in starter homes,” says Smith.
As with every housing boom, this one comes with its own 'horror stories', including the controversial sale of a corrugated iron house in a North Wales holiday spot. The timber-framed, three-bedroom detached property in Aberdaron on the Lleyn Peninsula was given a £90,000 price tag at auction, a figure condemned by Welsh language pressure group Cymuned as “absurd”.
But in March, the Welsh Assembly refused calls by local authorities to introduce planning rules to favour local people, as happened across the border in South Shropshire. Planning and Countryside Minister Carwyn Jones said he was in favour of increasing the pool of cheaper housing but feared restricting some areas to “locals only” would pose legal problems.
Halifax has highlighted 10 towns where housing is still affordable: Caernarfon, Aberdare, Ebbw Vale, Holyhead, Llanelli, Merthyr Tydfil, Neath, Pontypool, Porth and Port Talbot.
But Deborah Brougham, a broker at Merthyr Tydfil-based AC Brougham, says Merthyr Tydfil isn't affordable any longer. “Two years ago you could get a two-bedroom terrace for £45,000 but now it would cost at least £75,000, while the average three-bedroom terrace has gone up from £75,000 to around £105,000,” she says. “One buyer came to us saying he had £50,000 but all we found in the whole area was a tiny one-bedroom flat.”
Cardiff overspill is further piling on the pressure. “Improved road links have encouraged people who can't afford to buy in Cardiff to move into the valleys and this is squeezing out local people.”
Ironically, buyers don't have to pay Stamp Duty because the area has been earmarked by government as needing regeneration. “People coming from Cardiff are laughing because the saving applies to them as well,” adds Brougham.
Buy-to-let is making the problem worse. “When we sold our house recently the first offer came from a Londoner wanting an investment property,” she says. “Local people simply can't compete with London wages or homeowners borrowing against the equity in their properties. We said no because that would have meant one more local family who couldn't get their own home.”
Cambria Financial's Fielding says buy-to-let is helping existing property owners profit at the expense of prospective first-time buyers. “People are using the equity in their homes to put down a deposit on an investment property, often to supplement their retirement plans. This drives prices out of the reach of first-time buyers who effectively pay somebody else's mortgage through their rental income. It's a vicious circle.”
The buzzing property market hasn't necessarily translated into good times for local brokers. Brougham says the shortage of properties means mortgage business comes in fits and starts and brokers have to work hard to drum up remortgage business instead. Fortunately, many people who can't afford to move are keen to raise equity for a conservatory or a loft conversion.
Ann-Marie Smith says any extra business is highly pressured. “Estate agents know they can sell properties 10 times over and are pushing for rapid completion,” she says. “Lenders are getting swamped and can't act quickly enough to satisfy buyers. This is highly stressful and most brokers are working 12-hour days to meet demand.”
Alan Nicholas, a broker at The Mortgage People in Pembrokeshire, West Wales, says business comes and goes quickly or it doesn't come at all. “People moving into the area often bring their own mortgage with them and many don't even need a mortgage,” he says. “If you have sold a family home in London you can buy two or three properties locally, so things don't automatically work in our favour.”
But Peter Losing, managing director of Harbour Financial Services, has found the property boom good for business. Harbour did £10.5m-worth of mortgage applications in 2002, its first year of business. This tripled to £30m last year. It now has two offices on the north coast of Wales, in Llandudno and Abergele, and its average loan size more than doubled from £60,000 to £130,000.
Like most brokers, he is shaken by the Welsh property story and wary of the future. “I went to Chelmsford recently. I assumed it would be pretty expensive and was astonished to discover prices just £10,000 higher than here,” he says. “Wales is catching up.”
New-build estates are failing to ease the property shortage. “A local developer recently released 21 new houses and 19 of these were snapped up by investors that day,” adds Losing. “It's boom time in North Wales, but where will it all end? I really don't know.”
Broker Jim Harrison still foresees a soft landing. “There is a shortage of new housebuilding in Wales just as in the rest of the UK and prices will continue to go up while demand outstrips supply. I expect inflation to rise by around 15% this year, then 10% the following year and after that at around 6%. I don't expect a major correction.”
The size and scale of the property boom is a new experience for Welsh brokers who will be hoping it doesn't lead to another, less welcome novelty – a dramatic crash. So far most are cautiously optimistic. But some day that shortage of first-time buyers has to bite.
The UK's most affordable housing along with the highest price rises
Paul Fincham, spokesman, Halifax. While Wales has some of the most affordable housing in the UK, it has also seen some of the highest price rises.
Prices have risen by 36% (compared with 19.1% in the UK) over the past 12 months – the second highest ranking out of the 12 UK regions after the North at 36.0%. The average house price is now £125,629 (below the UK average of £154,304).
The traditionally high house prices in some areas of Wales are having obvious knock-on effects for other towns as potential property buyers are increasingly priced out of the market. House prices in Swansea have climbed by 55% over the past year from £89,690 to £138,744 and Newport house prices are up by 23%. The Gwynedd region saw the highest annual house price increase for any region in the UK, rising over 56% to £131,921.
Properties in Cardiff have, however, only increased by 3% to £153,626 – the highest average house price in Wales. Some areas of Cardiff such as Roath Park have wide pricing brackets and are attracting attention from buyers, with houses available from £120,000 to over £500,000.
Houses are selling in all price ranges although the cheaper properties are the most popular.
First-time buyers in Wales have been hard hit by the rapid rise in house prices. First-time buyers faced a rise of 32% in the cost of buying their first home in 2003. Wales, along with Scotland, is home to the oldest first-time buyers, with an average age of 36 years, compared with 34 five years ago.
Although Welsh towns have seen some of the largest increases in house prices, the highest house prices in the UK are still to be found in the south of England. The gap between house prices in Wales and the south of England has however, narrowed over the past 12 months. At the beginning of 2004 the average property in the south of England cost twice as much as in Wales.
A summary of Welsh housing market
House prices in Wales have risen by 395% since the beginning of 1983, from £25,400 to £125,629 in 2004 Q1.
During 1983-2003 house prices in Wales increased at an average rate of 7.6% per annum.
Prices in Wales increased by 104% between mid-1985 and early 1990. Prices subsequently fell by 14% between 1990 Q1 and 1995 Q2.
Booming principality sees its first £1m flats come onto the market
Kevin Paterson, managing director, Park Row Independent Mortgages. Nowhere is UK house price inflation more marked than in Wales. In 2003 parts of Wales experienced growth in house prices of more than 55%, which is not only unsustainable but has effectively managed to price first-time buyers out of the market. So serious has this become that Welsh MP Hywell Williams recently tabled an early day motion referring to the “crisis” in the Welsh property market and asking the government to treat Wales in the same way as parts of the South-East in looking for solutions to the shortage in affordable housing.
A first-time buyer now has to pay almost £100,000 to buy a property in Wales, which may not sound high compared with other parts of the UK but this is traditionally an area of low house price inflation.
A continual search for the next investor market is helping fuel this boom in prices in Wales – coupled with an increasing trend towards holiday homes.
Unemployment in Wales is also at its lowest for 30 years which, coupled with the government's drive to make Wales a focal point for business and the wider European community, has helped speed up migration.
But it's not just the first-time buyer end of the market that is experiencing a boom. A coastal three-bedroom apartment is among the first flats in Wales to be valued at £1m. In Penarth near Cardiff, it overlooks the Bristol Channel and has been described as “extraordinary” by the estate agent selling it. The penthouse apartment has already had a number of viewers since it went on the market just a few weeks ago.
This comes at a time when house prices continue to soar across south Wales.
Recently a dilapidated beach hut at a picture-postcard resort was sold at auction for £39,500 to a buyer living in England. The hut, at the fashionable seaside village of Abersoch on the Lleyn Peninsular, is considered particularly attractive because it stands on freehold land and can be knocked down and rebuilt as a more attractive property. Despite having no running water or electricity the huts at Abersoch are in great demand.
Measuring 8ft by 8ft and in need of some repair, the blue-painted wooden shed has a simple corrugated iron roof.
Homes are out of reach of average earners
The average cost of a house in Wales has increased by 32.2% in the past 12 months making homes too expensive to buy for the average earner in Wales.
Principality's latest house price survey (to the end of March 2004) shows that the average house in Wales has increased in value during the past 12 months from £87,238 to £115,287.
“Contrary to predictions, property prices have continued to soar across Wales,” says Principality chief executive Peter Griffiths. “As a building society we are concerned that people are finding it increasingly difficult to get onto the housing ladder and recognise the problems faced by first-time buyers and people living in rural Wales in particular. Across the Principality, and especially in the rural areas, houses have traditionally been affordable compared with earnings but this is no longer the case.
“While there is evidence of a slight slowing down on the growth in prices in Cardiff, we believe that house prices across Wales will continue to increase throughout the year at a higher rate than other parts of the UK.
“The overriding reasons for this continued increase in Wales are the low cost and availability of mortgages and the high demand and low availability of housing, together with reasonable levels of job security. Segments of the Swansea and Bangor markets remain exceedingly strong and we continue to see high demand for properties in these areas.”
Peter Alan, Principality's estate agent subsidiary, is witnessing a buoyant market with large volumes of sales across southern Wales. During the first quarter of this year, sales were up by almost 25% compared with the same period in 2003. However, the number of properties on the market is declining and while Peter Alan maintains a strong market share, it confirms the ongoing shortage of supply which is contributing to strong house price inflation.
“Although interest rates are expected to increase throughout the year they will still be low in real terms,” adds Griffiths.
“However, this does not help those who cannot get into the housing market due to inflated prices and we have therefore recognised the likely increase in demand for social housing and the need to work with the National Assembly for Wales to find creative ways of addressing this,” he adds.