Prime country house values fall further

Prices in the prime country house market fell by 4.0% during the third quarter of 2008, according to the Knight Frank Prime Country House Index.

The index has now fallen by almost 8% over the past 12 months.

The most expensive properties have seen the smallest falls.

There are wide regional variations with northern regions proving most resilient.

Andrew Shirley, Knight Frank’s head of rural property research commented: “First birthdays are usually something to celebrate, but on the face of it there doesn’t seem to be much to cheer about as the credit crunch, which hit the UK last August, enters its second year. For the second consecutive quarter the Knight Frank prime country house index has recorded the biggest drop in its history.

“Average prices fell by 4% during the third quarter of 2008 adding to the 3.9% slide already experienced in the second three months of the year. Prime country houses are now worth, on average, 7.9% less than a year ago, bringing them broadly in line with the general housing market for the first time.

“Vendors were slower to cut guide prices in this sector of the market, hoping the credit crunch would not affect them. But they have now realised they are not immune to the downturn and are agreeing to lower their expectations.

“However, those at the top-end of the market are suffering the least. While cottages are now worth 11% less than they were 12 months ago, Manor houses have lost only 5% of their value. At the very top of the market, those houses valued at over £5m are still worth slightly more than this time last year. Prices, however, have dropped by almost 3% in the past three months and we could be looking at the first year-on-year fall for these “trophy” properties by the New Year.

“The picture across the south of England and Wales is uniformly gloomy, but the market in the north of England and Scotland continues to bear up, with an annual fall of under 1% in Scotland and a 5% increase in north-east England.

“Although it appears that the north-east is bucking the national trend, this area didn’t see the rapid price growth experienced by other regions in 2006 and 2007. This means, even without prices falling, it still looks good value to buyers. An extremely limited supply of prime property here is also helping to bolster prices.

“Now that the prime sector appears to be in step with the general housing market it will be interesting to see if this continues or whether there is a sharper correction still to come at the top of the market.”

Rupert Sweeting, Knight Frank’s head of country department said: “The prime country house market now seems more aligned with the general economic cycle so it’s not surprising that the lower end of the market, which is more dependent on credit, is suffering the most. Cottages and farmhouses are being particularly affected by the drop in demand for holiday and second-homes.

“On a more positive note, we have seen a sudden upturn in activity during the first half of September and have arranged a lot more sales than over the summer. I think this reflects a realisation by vendors that they need to be realistic when it comes to setting guide prices. Subsequently, this has encouraged those who have been thinking of buying for some time to take the plunge.

“Looking forward, it’s extremely difficult to predict where prices are heading. But if, as many economic analysts are predicting, we do see some interest cuts soon that will hopefully inject some much-needed optimism into a market that has been suffering from a dearth of good news.”