Equity remains the dominant factor

The ability of the upper tiers of the residential market to outperform the mainstream depends to a great degree on the distribution of equity.

The corresponding depth of the different regional prime markets will be a key factor in determining where they will sit on the recovery timeline relative to prime London at one end and the UK mainstream markets at the other.

One measure of this depth is the percentage of sales that fall into higher price bands. Across the UK as a whole, sales over £750,000 accounted for just 1.7% of all residential transactions in 2008 and 2009, while sales over £500,000 accounted for 4.5% of total sales.

London wealth spreads

Across the South East a significantly greater share of sales transact at these higher levels. In the same two-year period, 2.6% of sales were over £750,000 and 7.1% over £500,000, signifying a prime market underpinned by a relatively deep pool of equity, often based on wealth generated in the capital.

The London wealth effect extends across swathes of the commuter-driven hinterland, with more than one in five sales exceeding £750,000 in 16 districts across the counties of Surrey, Hertfordshire, Buckinghamshire, Berkshire and Kent.

Arguably this London effect extends into parts of the South West and East of England, not just to second-home locations such as the South Hams (with 3.1% above £750,000 and 9.3% above £500,000), but also to established prime London relation markets such as Bath (3.7% and 9.0%) and the Cotswolds (4.9% and 1.5%). However, the depth of prime markets in these regions is much more variable.

Affluent towns and suburbs

By contrast, in Wales, the Midlands and the North, less than 0.5% of all transactions are above £750,000. Prime markets in these locations tend to be more concentrated around a relatively small number of honeypot locations.

Typically these locations are either affluent towns and suburbs (with good links to regional cities, quality housing stock and high performing schools) or the most attractive rural areas, often with high levels of second-home ownership.

On the one hand they are the likes of Harrogate (2.8% over £750,000, 7.6% over £500,000) and the area around Wilmslow (4.2% and 10.2%), and on the other Derbyshire Dales (1.8% and 6.0%) and parts of Northumberland such as Castle Morpeth (3.2% and 8.2%).

Scotland is different again. Here 39% of sales over £750,000 took place in Edinburgh City in 2008 and 2009, this being the only Scottish location where such sales accounted for more than one in fifty transactions.

Scottish prime markets, albeit lower value, are concentrated in the commuter belts around Edinburgh and Glasgow, save for the oil driven micro market of Aberdeen. Beyond these areas the prime Scottish country house market becomes more property than location specific.

Strong seam of demand

The relative depth of all of these markets is reflected in their different buyer profiles. For example, while international buyer demand remains primarily London focused, it is gaining a foothold in the upper tiers of prime in the South East and also some of established parts of the South West.  

More importantly, the markets of the South are able to tap into a strong seam of demand from the financial and business services sector, while those of the Midlands and the North are more reliant on demand from the established professions and local entrepreneurs.

All prime markets are set to outperform their regional mainstream counterparts over the next five years but these differences will determine the extent to which this is achievable at a regional and local level.

Percentage of regional property sales over £750,000 and £500,000