When Maureen and Lathan Lewis put their three-bedroom terraced house in Llandudno, north Wales, on the market 12 months ago for £117,500, they expected a flurry of interest. After all, the Welsh market has been one of the hottest in Britain for the past five years. Prices in Conwy, in which the town lies, for example, rose by 136% in that period, according to figures from the Halifax.

The couple have been obliged to lower their expectations, however. Potential buyers failed to materialise, and Lathan, 30, head chef at a restaurant in Llandudno, and his 27-year-old wife, who has just finished a degree in biomedical science, took the property off the market. The birth of their third child, nine weeks ago, resulted in a new urgency, and they decided to drop the price by £5,000.

“We thought it would generate some viewings, and it did,” says Maureen. “We decided to drop it again to £110,000. All of a sudden, we were inundated with people who were very interested indeed.” It eventually went to a first-time buyer.

Llandudno is not some isolated property cold spot; the market in much of the rest of Wales is looking decidedly shaky, too. Of the 10 locations to experience falling prices in the two months to May – the latest period for which figures are available – eight were in the principality.

According to the Land Registry, house prices in Newport fell 1.99% in the period – the biggest drop anywhere in the UK. Prices were also weakening in Gwynedd, Blaenau Gwent, Torfaen, Rhondda Cynon Taff, Swansea, Ceredigion and Powys.

So, does the apparent crumbling of prices in Wales give a foretaste of what is likely to happen elsewhere in Britain? It is certainly dangerous to read too much into two months’ figures, especially in Wales, where the market has been volatile. On several occasions during the past few years, prices have dropped during one quarter, only to bounce back in the next. The latest weakness should also not detract from the fact that prices for the year are up by 9%.

Yet such falls are more than a statistical blip, and they could be spreading to England, too: in those same two months, prices also dropped slightly in Nottingham and Halton, Cheshire. They were static in Cheshire as a whole, and barely moved in areas as diverse as Blackpool, northeast Lincolnshire and the Isle of Wight.

For Lucian Cook, director of research at Savills, the woes of the Welsh property market are a reflection of the broader economic outlook – in particular, the gulf between London and its southeastern hinterland on the one hand, and the rest of the country on the other.

“Recently, we have seen net movement of individuals from the south to the north,” he says. “But we are now seeing this trend reversed, as a result of greater prosperity in the south.

“Areas with the lowest economic growth will be hit the hardest. We will see a north-south divide emerge, with the market in southern England remaining robust; the north and Wales faltering; and the Midlands and less glamorous southern counties, such as Wiltshire and Somerset, falling somewhere in between.” This is not just because the broader economy in the south remains strong, while the market in the north and Wales – where the local economy is more reliant on government spending – is suffering from public-sector cutbacks. Cook sees it as a consequence, too, of London’s growing attractiveness to the world’s super-rich. This boosts prices not just in the capital’s property market, but also towns in the southeast within commuting distance of London.

Further afield, seaside and rural areas that are popular with metropolitan holiday-home buyers also benefit. For that reason, it is little surprise that Pembrokeshire, with some of the most beautiful coast in Britain, has bucked the downward trend in Wales. Prices in the county rose by 4.53% from March to May – the fastest anywhere in Britain – taking growth for the year up by 5.2%.

Fionnuala Earley, chief economist of Nationwide, also sees stark regional differences. “In England, the north-south gap that began opening up last year remained significant in the second quarter,” she says. The building society’s latest report found that prices in the south rose by 5.6 percentage points more than those in the north during the three months.

So, will prices really start falling back substantially in those parts of Britain that aren’t being boosted by London money – especially after the release, last week, of inflation figures that could lead the Bank of England to put up interest rates yet again next month?

Martin Ellis, chief economist at the Halifax, is not convinced: “Wales has been one of the top performers over the past few years, but there has been an element of catchup,” he says. “Now there is some sign prices may have gone a bit too high, resulting in the small fall-back we’ve seen.

“Affordability is stretched in Wales, and it is difficult for first-time buyers, in particular, to enter the market, especially with higher interest rates on the table.” For that reason, he expects “small falls” not just in Wales, but in northern England, although he believes the market, overall, is “in a very healthy state”.

Not everyone is so sanguine. The Dutch bank ABN Amro claimed in a recent report that house prices in the UK were overvalued by almost 50% – against 25% in the USA – making Britain “even more vulnerable to a housing crash than America”.

Even if prices do drop in certain parts of Britain, it will be a while before many homeowners really have to worry. The Lewises, for example, bought their property for £32,000 in 1999 – which means prices would have to go back down a long way for them to be faced with the alarming prospect of negative equity. But for those who have bought recently – and borrowed heavily to do so – there could be trouble ahead.

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