London house price growth has slowed rapidly to the lowest level of quarterly growth for 20 months.
According to the Hometrack UK Cities House Price index, in the last three months London residential values have recorded their lowest growth rate since January 2015.
Fears of a potential housing bubble, tightening credit terms and concerns over a mansion tax impacted demand for housing in London at this time.
In the last quarter, London residential values have increased by 0.9 per cent, compared to an average of 3.0 per cent over the last 3 years.
The recent slowdown is yet to impact the annual rate of growth which is running at 10 per cent but is expected to move towards 5 per cent by the year end.
Nine cities are registering house price growth lower than at the start of 2016 with the greatest slowdown led by Cambridge, Oxford, London and Aberdeen.
Slower growth is a result of affordability, economic and market confidence factors.
However house price inflation across UK cities is holding steady at 8.5 per cent per annum, higher than the 5.7 per cent growth recorded twelve months ago.
Residential values across UK cities are registering a higher rate of growth than the overall UK market where house price growth is running at 7.2 per cent per annum.
House price inflation continues to run more than three times faster than the growth in earnings as household confidence improves, earnings rise ahead of inflation and low mortgage rates make housing affordable for those with equity.
Eleven cities are registering higher rates of capital growth than in January 2016.
The majority of these are large regional cities outside the south east of England – Liverpool, Manchester, Cardiff and Birmingham.
These cities have attractive affordability on a price/earnings ratio measure with house prices rising off a low base. Annual house price growth currently ranges from 6.6 per cent in Liverpool to 8.0 per cent in Birmingham.
Jeremy Duncombe, director, Legal & General Mortgage Club, said a modest deceleration in house price growth over the summer months was “no shock”.
“We shouldn’t rush to assume that a correction like this is just the result of the recent political climate.
“While the slowing of house price growth will be welcomed by some in the ongoing battle against unaffordable housing, it shouldn’t distract from what the facts show: House prices are still going up at an unsustainable rate - 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 building 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.”