Monday, 10 March 2008

The north - it is different up there

Sadly, I don't get many opportunities to visit the North of England. This has led to a somewhat blinkered "southern perspective" on my part. This lack of perspective has meant that I haven't given enough weight to the the Northern BTL apartment bubble. Instead, this blog has tended to focus on the overpriced nature of London property, along with the excessive credit growth of British banks.

Sunday's observer alerted me to the essential differences between the property market north of the Watford Gap and the one down here in London. It reported that "council tax data shows that as many as 30 per cent of city centre apartments in Leeds are empty, either because they have not sold or because their buyers don't want them any more. " This massive oversupply coming from a construction boom is not something that is seen in London.

In some respects, this problem sounds rather like the condo glut that has afflicted many bubble cities in North America. While credit availability remains an important factor, the role of the apartment buying BTL investor has also played a significant role in northern cities like Leeds, Manchester and Newcastle.

It is hard to conceive of Leeds as Britain's answer to Florida, but condos the world over have the same dark attraction. Their small size and comparatively limited financial outlay always attracts the same kind of people. Naive but greedy investors, with some spare cash, anxious to gamble and leverage themselves into ruin with borrowed money.

While people are beginning to wake up to the fact that the bubble is over, there is still a mistaken belief that the adjustment will be gradual, manageable and temporary. In the back of people's mind, there is still the idea that 2 years down the road, the housing market will be blowing up again, with steady and reliable capital gains.

Many BTL investors have begun to make that long journey that ends with them recogning that when 30 percent of new apartments are empty in a single city then the inevitable adjustment requires massive financial losses. The journey starts with them moving into a fuzzy grey area, where coping strategies are the dominant themes. On the one hand investors know that the market is in trouble and that the short term profits that characterized this caper are no longer there. On the other hand, investors are absorbing the losses that come from limited cash flow and low rental yields. People are digging into other income sources or possibly withdrawing equity to manage the mortgage payments.

Yet these coping strategies only make sense if there is a hope that prices will recover. Soon, and we won't have to wait too long, hope within the BTL market will collapse, and then we will witness a financial meltdown the like of which we haven't seen in our lifetime.


The Real Lizzy said...


You need to get out of London a wee bit more. Treat yoursself to a daytrip to the north. Or better still, why not come over to Dublin and see a real housing crash.

Anonymous said...

Alice, wasn't that a typo in your first sentence? Surely it should read: "Gladly, I don't get many opportunities to visit the North of England."

Alice Cook said...

Noooooooooooo, I am sad not glad.


Anonymous said...

I'm from Manchester and, with the exception of an 18-month misadventure in London, I've lived here all my life. I currently rent a 1 bedroom apartment with my girlfriend; the development we're in is genuinely well located (i.e. it's a 1 minute walk to Deansgate, one of the main streets in Manchester for shopping and socialising), it has a 24-hour concierge and we have a balcony over the river Irwell (which isn't quite as polluted as it used to be). The landlord paid £135,000 for it in 2000, and until recently it was on the market for £179,950. We pay £675 per month in rent. If the landlord has a 100% mortgage (£135,000), our rent covers the interest on it. Then there's the concierge fees, maintenance, etc; so we're being subsidised to live there. No-one in their right mind will pay 180 grand for it.

The apartment we're in is a conversion which was completed in the year 2000, before the 'apartment boom' took place. One thing I have noticed about a lot of the newer apartments is that they are sold on the basis of lies. For example, take a look at this 'gushing' article from the Telegraph, before everything started going sour. This article extols the virtues of Ancoats; it's a 'regeneration area' (read: it's largely populated by complete scrotes who you would cross the street to avoid), it's '10 minutes walk from Piccadilly station' (read: if you're looking to live close to the city centre to eliminate your commute into Manchester, it's actually a 20-30 minute walk from anywhere you might actually work). One particularly brilliant quote is about a development called 'Miliners Wharf' - apparently it's 'adjacent to a new Metrolink tram extension'. This is the same tram extension that was due to be completed for the Commonwealth Games in 2002, and construction still hasn't started on it. Oh, and with the area being close to the City of Manchester Stadium, it is traffic hell every time there's a football match or pop concert taking place. Just the kind of place you'll want to be spending £200,000 of the bank's money, then?

I recently saw the listing for a property auction - there were four properties up for auction from one particular development in Ancoats, and none of them met their reserve.

The bottom line is this: in 10 years, 50% of these so-called 'city centre' apartments will be social housing. There are absolutely loads which are empty, they're not selling and the muppets who believed the hype and bought the properties without doing any research have been well and truly fleeced.

Paul said...

Anonymous from Manchester,

checked out the article from the Torygraph - or was it an advert.


"Investors can see that prices are still lower than elsewhere but the infra-structure for real growth is in place."

"The whole of East Manchester is starting to gather pace," says Andy Hurst, sales and marketing director at developer City Lofts, which has launched Milliners Wharf, 261 apartments on the banks of the Ashton Canal.

East Manchester's plans, though, seem very much community-oriented, rooted in maintaining the indigenous population and attracting families and long-stayers rather than weekenders or anonymous investors.


Anonymous said...

ukhb: ¨there is still a mistaken belief that the adjustment will be gradual, manageable and temporary.¨

I survived the last housing crash, my friend walked away from his property. For both of us it was a salutary lession, at one point I owed 18K on a 47K mortguage.

With the even more inflated valuations and the hollowed out economy, this is going to be much, much worse.

Dumuro said...
This comment has been removed by a blog administrator.
Anonymous said...

"Dumuro said...

See Here"

Do not click this link.

Lucy 4Homes said...

That interests me - the government is building more housing on flood plains in the south (and you know what those are like to live in if you've watched the news recently), and yet private properties elsewhere lie empty. I blog this sort of thing daily at, and it still doesn't make sense to me. I think we're all too south-centric - thanks Alice for the reminder - I'm going to look north more often!

Alice Cook said...

Dumuro has been zapped. If he comes back again, I will zap him again.