London lags behind five UK cities as the capital’s house price growth drops by two-thirds in just three months
UK house prices have increased by 8.9% year-on-year but there has been a continued slowdown in the monthly rate of growth in recent months, Hometrack has revealed in its latest UK Cities House Price Index. The rate of house price growth in London slowed by two-thirds in the last quarter compared to the 12 month average (0.5% compared to 1.4%) with Edinburgh, Glasgow, Southampton, Bristol and Birmingham now all registering higher inflation than the Capital in the last 3 months as demand for housing continues to push prices ahead. This growth is being supported by the fact that house prices are still rising off a low base in many cities.
House prices are above their 2007 peak in eight cities with London (30.5%), Cambridge (28.7%) and Oxford (21.9%) leading the pack but these markets are starting to register the clearest slowdown. This translated to an average annual increase in London property values of £57,000, which is nearly four times the national average of £15,200 and almost twice the UK’s average income. Liverpool recorded the lowest increase in values with just £3,000 added to house prices in the last year.
The Scottish cities of Edinburgh (1.8%) and Glasgow (0.9%) registered the fastest house price inflation in the last quarter, as demand fed back into the market post-referendum. In a reversal of fortune, the former high growth cities of Cambridge and Aberdeen have seen the fastest slowdown with growth of -0.2% and -0.4% respectively.
Richard Donnell, Research Director, Hometrack, said: “The high growth cities over the last year are now recording the fastest slowdown and this is most pronounced in smaller cities such as Cambridge and Aberdeen. The Aberdeen economy is closely related to the health of the oil industry and a weakening oil price is impacting the housing market. The slowdown in London, which we identified in, will act as a drag on the UK rate of house price growth over the next 12 months. The rate of growth in house prices is starting to lose momentum across other cities in southern England, while across the rest of the country modest levels of house price appreciation continue as prices rise off a low base.
“Overall we expect modest UK house price growth of 2% in 2015, which is more in line with earnings growth. Significant pent-up demand has feed back into the market in the last two years pushing house prices higher in all cities but the underlying rate of growth is now slowing across the majority of markets.
“The introduction of mortgage market affordability tests in the middle of 2014 has reduced the overall impact of low mortgage rates on house prices. A return to more modest rates of growth should be welcomed especially by the Bank of England. The ongoing heath of the housing market is now about the extent to which the growth in the economy feeds into continued growth in incomes and employment.
“Whilst there are only isolated price falls city level, there is clear evidence of more localised price falls starting to emerge with, for example 20% of London postcodes registering price falls in the last quarter. We would expect to see further, modest price falls the months ahead as prices re-align off a high base to what buyers are prepared to pay. Changes in demand can feed quickly into prices as we have seen in the last 18 months but it is important to remember the equation works in both directions.”