London house prices continue to lead the way

The London housing market continued to stride out ahead of the English regions in the final quarter of 2006, according to the Nationwide Quarterly House Price Review.

Commenting on the figures Fionnuala Earley, Nationwide's Group Economist, said: “The annual rate of house price growth returned to double digits for the first time since Q3 2004, reaching 11.3%, well above the UK average of 9.3% and only slower than the booming markets of Scotland and Northern Ireland.

“The price of houses in London continues to dwarf those in other parts of the country. The typical house in London costs £269,327 - more than one and a half times higher than the average price in the UK of £172,065. House prices also increased by more per day in the capital during 2006. A typical house in Greater London increased by more than £75 per day, compared with the UK average of £40 per day.

“During the final quarter, the rate of house price growth in London accelerated to 4.1%, up from 2.6% in the previous quarter. There are no signs that the market is beginning to cool just yet. Estate agents’ data shows the London market is one of the most stretched in terms of supply. The sales to stock ratio, which is a good leading indicator of house price growth, suggests that London will see some further acceleration in prices in the coming months. In addition, another set of large city bonus payments should also support prices.

“The slow response of supply to changes in demand levels was an important factor in the strength of the housing market in 2006. The success of the London economy has attracted a large inflow of workers who require accommodation. Looking forward, the provisional building plans for London and the South East fall far below the expected levels of housing demand suggested by government household projections, even those based on conservative immigration assumptions. This suggests that a lack of supply will continue to be a big supporting factor in the London housing market in 2007.

“Another factor is the investment in transport infrastructure and development in advance of the Olympics. While the Olympics are still some way off, some speculative demand will undoubtedly affect prices in the areas around the development site. Indeed, Inner London East which includes Stratford, East London where the Olympic village will be based, has seen prices increase by 14% this year. However, not all of this can be attributed to the Olympics. This part of London also includes Islington and Canary Wharf, areas close to London’s financial centre and therefore popular with highly paid city workers. Inner London West saw the biggest gains in London in 2006. This part of London, which includes the wealthy boroughs of Kensington and Chelsea and the City of Westminster, saw prices increase by 16%.

“Overall we expect the London market to outperform the UK average in 2007. Prices are expected to increase by between 8% and 11%, significantly more than the expectation for the UK as a whole of 5% to 8%.”