Housing market divide highlighted

The North-South divide in the housing market has been highlighted again as official figures showed prices have risen in England and Wales over the last year but have fallen in Scotland and Northern Ireland.

House prices increased by 2.3% in the 12 months to May, reaching £228,000 on average, the Office for National Statistics (ONS) said, but if London and the South East were stripped from the figures the typical price would be £183,000.

Beneath the surface, much of the increase was driven by a 7.2% rise in London, which has had strong interest from overseas buyers, making it the biggest rise seen by the English capital since November 2010.

Analysts said that ultimately prices in the South are likely to be dragged down as well as those in the North as the economy remains weak and borrowing becomes tougher. The South East and East Midlands saw rises of 3.4% and 2.3% respectively, the highest increases in these regions since December 2010, the ONS said.

But the patchy market remained in evidence as prices slumped in Northern Ireland by 10.3% year-on-year to reach £132,000 and dipped by 1% in Scotland to average £177,000. The recent trend of Northern Ireland recording sharp declines has been put down to the market "normalising" following a period of rocketing prices before the financial crisis.

Wales recorded the biggest year-on-year increase of the UK countries, with a 3.5% rise to reach £154,000, while there was a 2.6% rise across England, where typical sales stood at £237,000.

Ed Stansfield, chief property economist at Capital Economics, said that as well as levels of buyer demand and the employment market having a strong bearing on the housing market, prices in the North have fared comparatively badly recently as they had previously risen too far relative to prices in the South.

He said: "One possibility is that further price gains in London and the South will first stabilise and then help to boost house prices in the North. But with house prices in all regions still looking overvalued, the economy weak and credit in short supply, it seems more likely that further price falls in the North will ultimately undermine prices in the South."

The North West and the West Midlands saw the biggest decreases over the year out of the English regions, with falls of 1.6% and 1.2% respectively. Across the UK, prices were flat month-on-month.

The average price paid by first-time buyers increased more sharply over the year than those paid by people who already owned their own home. First-time buyer prices increased by 2.8% over the year to May, to reach £171,000, while prices paid by existing owners increased by 2.1%, to £262,000.