As country estate agents wait for the first January phonecalls to give them some idea of which way the wind will blow in 2008, most are already resigned to the prospect of a return to more traditional trading patterns, after three years of frenzied early-season activity off the back of high annual City bonus payouts. But, given that few home-owners under the age of 40 have any real experience of a property market where prices were not constantly increasing, it’s hardly surprising that even those unaffected by the current credit crunch should take time out to consider their next move. One senior estate agent, who well remembers the last real recession in the country-house market, was amused recently when one of the property-market’s ‘young Turks’ asked him anxiously: ‘Was it really this bad in 1991?’ Son, he must have thought, you ain’t seen nothin’ yet.

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With no early end in sight to the confusion in the financial sector, most leading agents support the view of Richard Donnell, director of research at market- analysts Hometrack, that ‘the greatest casualty of the current slowdown will be property transactions rather than house prices’, adding ‘although we expect the annual rate of house-price inflation to slow to 1% by the end of 2008, transaction volumes are expected to fall by 17% over the year. Indeed, the next 12 to 18 months will be characterised by a general lack of housing for sale, which will provide a support to pricing, although this will result in much greater price volatility within local markets’.

Max Ziff, CEO of Humberts, neatly sums up the prospects for the market as a whole, using three possible scenarios;’best case’, ‘mid case’ and ‘worst case’. In volume terms, he expects the total number of property sales taking place in 2008 to fall, at best, by 12% (compared with 2007), and at worst by 18%, with a mid-case scenario of -15%. In terms of prices achieved, he anticipates a best-case scenario of zero growth, with a mid-case version of -3%, and a worst-case one of -6%. Humberts’ ‘weather forecast’ for the areas of the market most susceptible to the fallout from the credit crunch varies from ‘stormy’ at the lower end – properties priced at less than £350,000 – to ‘cloudy with rain at times’ in the crucial £750,000 to £2 million market, and ‘clouds with some sunny spells’ in the market for properties valued at more than £2m.

The latter prediction is probably the one which best sums up the outlook for the country-house market, where buyers are less dependent on mortgage finance and where, in recent years, demand has always exceeded supply. In fact, the prospect of fewer City-bonus earners looking to buy second homes in the country is likely to be greeted with glee by local buyers, who see a downturn as their best chance in years of trading up to the kind of country home they have always dreamed of.

This is especially true of the market for country properties in the £1m to £3m price bracket in the south, east and west of England, where in recent years, local families have been consistently outbid by City purchasers looking to invest their bonus windfalls in a country or coastal retreat. Savills are predicting now that the current squeeze on City bonuses, which has already precipitated a slowdown in prime London residential markets, will affect house prices in the second-home hotspots of the South-West and East Anglia during the next 12 months.

A quick look at the extraordinary level of house-price growth in Savills’ league of 15 most sought-after second-home destinations makes it easy to understand why even well-off local and regional buyers have found it hard to compete in recent years. As research director Lucian Cook explains: ‘Recently, these areas have taken on the characteristics of prime central London, namely, significant wealth chasing limited stock in unique locations, where in the past 10 years, the value of the average property has increased by 287%, far outstripping average growth of 180% for England and Wales as a whole.’

Salcombe, Devon, where last year the average house cost £505,130, has seen prices more than treble in the past 10 years, and more than double in the past five. The greatest percentage increase has been seen in Padstow, Cornwall, where prices have risen by a staggering 357% since 1996, to an average of £335,520. In the same period, prices also more than trebled in Croyde, north Devon (+301%), Walberswick, Suffolk (+302%), Burnham Market, Norfolk (+315%) and Rock, Cornwall (+ 315%). But even if prices were to fall by as much as 10% in these areas, which seems unlikely, property owners who bought in recent years will still be sitting on a very tasty investment. And, although City bonus-earners may turn out to be less of a driving force in 2008, it would be foolish to write them out of the script altogether.

Every cloud hanging over the City of London always has a silver lining, or, in the case of those clever boys at Goldman Sachs, a golden one. They were the ones who read the market right when the US sub-prime mortgage fiasco first began to unravel, hedged their bets, and are now about to pick up bonuses even bigger than last year’s. City ‘geezers’ are still prepared to pay what it takes to buy the best houses in Essex, says Jeremy Smallman of Jackson-Stops & Staff in Chelmsford. Further down the scale, there are still plenty of buyers out there for good, realistically priced family houses.

Mr Smallman cites the example of Park Farmhouse at Finchingfield, Essex, a pretty, seven-bedroom Georgian house with 2.75 acres of gardens and grounds, which he launched on the market on October 11 with a guide price of £1.5m; it sold within three days, and completed in early December. The new owner is a banker based in Canary Wharf, who will drive to his office each morning, leaving home at 6am. Most of his competitors, Mr Smallman reveals, were based either in Docklands or the City of London.

Similarly, City grandees are lining up ‘in unprecedented numbers’ to buy rural estates in Scotland, says William Jackson of CKD Galbraith in Perthshire, who handled the sale of 12 of the 20 Scottish estates that came on the market in 2007. Typical of the market was the hotly contested sale of the Boreland estate in Dumfriesshire, with its 959-acre home farm and grand mansion house, for which offers over £3m were invited. In the event, the estate was sold to a returning Scot, thereby setting the tone of the country-house market as a whole in 2008, as local buyers regain the initiative in Country Life’s 10 most coveted regions of the countryside, where supply, not demand, will determine which way the year pans out.

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