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From The Sunday Times

October 21, 2007

It’s dire in the shires

After years of rude health, the country-house market is taking a battering

Graham Norwood

Click here to see how the property market in Aberdeen is doing

Allison and Andrew Johnson have just slashed £55,000 off the asking price of their Queen Anne country house in Staffordshire. It is a move that would have been laughable when the couple put Lea Knowle Farm up for sale in February. Stock levels were low, buyers were queuing up – and prices of prime property were soaring, from Chelsea to Cheshire via Chelmsford.

The market for country houses – alongside that in prime central London – has been one of the most buoyant sectors of the British housing market in the past few years. Now, inevitably perhaps, it seems to be falling victim to the loss of confidence caused by the global credit crunch.

Prices across the country are flat, and in some places, such as the southeast, southwest and East Anglia, they are even falling back. According to the estate agency Savills, prices of “prime” country houses (those valued at £1m or more) rose by 1.4% between July and September, just half the rate of growth in the preceding quarter (2.8%) and way below the 3.5% seen in the final quarter of 2006.

“It reflects a market taking stock of the economic climate,” says Lucian Cook, head of residential research at Savills. “The volatile financial markets have precipitated a cooling of the hitherto exceptional performance in prime housing markets.”

The fate of the Johnsons, and the fluctuating value of their Grade II-listed five-bedroom farmhouse in Bishops Offley mirrors that of the national housing market. Their decision to drop the price from £750,000 to £695,000 coincided with the near collapse of Northern Rock in the wake of the chaos in the American sub-prime mortgage market, which led to a slowdown in the UK housing market. There has been a resurgence of viewings since the price cut in early September, but they have had no offers.

“The problem is that interested buyers have to sell their properties before they can proceed,” says Andrew, 45, director of a computer software firm. “Chains are slowing, so we’re not out of the woods yet.”

Break it down regionally and the picture for the third quarter that emerges from those Savills figures is gloomy. Prices of country piles in the home counties saw growth of 1.1%, houses in the west and southwest only 0.84%. The best-performing regions included the east (2.24%) and Scotland and the north (both up 2.4%).

Look more closely and some of the most popular country-house locations recorded marked falls. According to Primelocation.com, a property-search website, prices fell in August and September, for the first time since March 2006.

“Record numbers of country properties have been coming onto the market, with volumes up 3.8% on last month and 32.6% annually,” says Ian Springett, chief executive of Primelocation. “This has suppressed the potential for price growth.” Prices fell by 1.7% in Hertfordshire, 2.8% in Surrey and 4.4% in Buckinghamshire.

Such a turnaround in the market has led Bidwells, a specialist rural agency in the east of England, to slash its price-growth forecast for 2007 by half, to 4%. It says prices of rural properties in Suffolk, Essex and Cambridgeshire have all dropped by as much as 3.9% since the summer.

“It’s as if the entire year’s market activity was crammed into the first six months,” says Chris Carey, residential managing partner of Bidwells’ Cambridge office. “We saw prices rising by 10% to 20% on some properties. Now they are static, with a rough balance between supply and demand. We reckon we won’t see any rises for the rest of this year, and there will be far fewer transactions.”

All of which is not good news for the Johnsons, or indeed the owners of Whitway House, in Berkshire. The Hietts have just cut £150,000 from their asking price. Like many owners of country homes, they were hoping to catch the attention of a City buyer who, frustrated by the lack of property on show early in the year, would come bounding to their door, multimillion-pound bonus in hand.

Their dream buyer has failed to materialise, so the couple’s Grade II-listed five-bedroom house, near Newbury (and rather too near the A34), which went on sale in July for £1.25m, is now priced at a more modest £1.1m.

“City bonuses are anticipated to be lower than the payouts of the past two years,” Springett explains. “With City money a key component of demand, we expect to see this affect the market over the next few months.”

The autumn market has not taken off, and forecasters predict a bonus shortfall of between £2 billion and £7 billion this winter. Given that about half the City’s annual windfall goes into property, there is a chill wind blowing in the shires.

Lea Knowle Farm is for sale for £695,000 with Savills; 01952 239500, www.savills.co.uk. Whitway House is for sale for £1.1m with Knight Frank; 01488 682726, www.knightfrank.co.uk