City house price inflation slows

Mortgage Introducer

September 23, 2016

The pace of city level house price inflation is slowing with growth in the year to August 2016 running at 8.2%, latest figures from Hometrack UK Cities House Price Index reveal. 

The 20 city index recorded its lowest level of quarterly growth (1.9%) for six months as a seasonal lull in market activity and weaker demand post Brexit and the March stamp duty change reduce the upward momentum of house price growth.

Bristol continues to register the fastest rate of annual growth (13.1%) followed by London (10.4%) but the trend in these cities is towards slower growth.

A similar trend is evident across most cities located in southern England including Cambridge, Oxford and Bournemouth where annual growth has slowed in the last few months.

Cambridge has registered the fastest deceleration in growth from an annual rate of 16% in March 2016 to just 6% today as affordability pressures and weaker investor demand impact growth.

London has registered a modest 0.9% increase in house prices over the last three months, more than half the average quarterly growth rate over the last 12 months (1.9%) – if this trend continues, as seems highly likely, then house price growth in the capital will be running at c.6% per annum by the year end and on course for low single digit growth by spring 2017.

Record unaffordability, tax changes that impact investor demand and high stamp duty costs are all combining to reduce market activity in the face of rising supply.

A more granular view on London reveals the lowest rates of annual growth in the highest value, inner London boroughs – Kensington & Chelsea (0.2%), Hammersmith and Fulham (1.0%), Westminster (1.8%), Wandsworth (4.1%) and Camden (4.4%). Most of these areas have been registering small price falls over recent months and further single digit falls are likely in the months ahead as pricing levels re-align to what buyers are prepared to pay.

It is dangerous to view London as a single housing market – the highest rates of house price growth remain in the outer London boroughs of Barking and Dagenham (16.2%) and Havering (14.6%) where average house prices are 30% lower than the London average. Affordability is running out fast in these markets which have significantly out-performed central London for the last 2 years and single digit growth awaits in the months ahead.

While house prices in London and other southern cities have been rising consistently for approaching eight years, supported by strong investor demand and low mortgage rates, there are several cities where the recovery has been more short-lived.

The city housing markets with the strongest underlying rates of growth remain those that have some of the lowest prices and where the pick-up in prices has been running for the shortest period of time. Liverpool and Glasgow have recorded the fastest growth in the last three months where average house prices of £114,000 are around half the price of the 20 city average (£239,400).

Other regional cities such as Birmingham, Edinburgh and Aberdeen have posted house price increases of more than 2% in the last quarter, all above the 20 city average over the same period (1.9%). This something of a turnaround for Aberdeen where average prices fell by £20,000 or 10% since July 2015 but where they have rebounded in the last quarter now the impact of the falling oil prices has been priced into capital values.

Jeremy Duncombe, director, Legal & General Mortgage Club, said: “It’s no shock to see a modest deceleration in house price growth over the summer months and we shouldn’t rush to assume that a correction like this is the result of Britain’s vote to leave the EU. In fact, the slowing of house price growth will be welcomed by some in the ongoing battle against unaffordable housing.

“Despite this, house prices are still going up. These rises are at an unsustainable rate that remains well above the yearly wage increase of the average Briton. The only way this deepening problem will be resolved is if the Government commits to build hundreds of thousands of new, affordable homes.

“Fortunately, we are now seeing signs that the new Government is making this issue a priority, and hopefully through strategic planning we will see changes made sooner rather than later.”

And Adrian Gill, executive director of Your Move & Reeds Rains, added: “It’s really no surprise to see a softening in house price growth over the summer months.

Nor should this easing in price inflation be considered a cause for concern. The unsustainable rate at which property values have been rising has meant that many potential homebuyers have been priced out of the market – especially in areas like London and the South East.

“The truth is, now is a great time to buy a home. The fundamentals of the housing market remain strong, with record low interest rates and lenders maintaining their appetite to lend. However, what still needs to be addressed is the huge imbalance between the supply and demand of properties.

“We need around 300,000 new homes to be built every year to meet demand, yet only 180,000 were built in 2015. The government has vowed to prioritise housing on its agenda, which is good news for buyers and the industry as a whole. Progress in this area will ultimately ease uncontrollable price hikes and help an entire generation realise their dream of owning their own home in their region of choice.”

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