Prices in key UK cities still rising but growth expected to moderate
11-29-2016
Property prices in key UK cities are continuing to rise, up 8.4% year on year and 2.3% quarter on quarter but the growth is slowing, according to the latest index.
The annual growth is led by Bristol where prices have increased by 10.6% to £259,400 in the 12 months of October 2016 but at the opposite end prices are down 8.1% in Aberdeen although it should be remembered that the city’s housing market has been affected by the fall in oil prices.
The data from the Hometrack city index also shows that the impetus for house price growth is shifting from the affordability constrained cities in southern England to cities in the Midlands and the North of England where affordability remains attractive.
In London prices have increased by 9.1% year on year to an average of £482,800 but the annual rate of house price growth has slowed to its lowest level for three years. Hometrack predicts that price growth to slow to low single digits in London in the next six to 12 months as demand softens in the wake of a raft of fiscal policy changes aimed at overseas buyers and investors as well as concerns over the impact of Brexit on the economy.
Indeed, the Hometrack central London index which covers the top 5% of the London market by value is already registering 0% house price growth.
The index shows that Portsmouth and Cardiff have also recorded strong annual growth of 8.3% and 8% to an average of £218,600 and £193,000 respectively. Birmingham and Manchester both have seen annual growth of 7.7% to £145,500 and £148,100 respectively.
In the short term Hometrack expects regional cities to continue to drive house price growth. ‘Many of these cities have seen relatively limited house price growth in the last six years and have significant upside for house price inflation,’ the index report says.
However, it warns that this forecast is subject to the outlook for the economy, borrowing costs, earnings growth over 2017 as the Brexit process is started.
The report looks at affordability and says that the price to earnings ratio ranges from 3.7 times in Glasgow to 14.1 in London, compared to a UK average of 6.5. London has the highest price to earnings ratio on record as a lack of supply and strong demand fuelled by low mortgage rates has resulted in an 86% increase in house prices since 2009, far in excess of earnings growth. Cambridge and Oxford also have double digit price to earnings ratios which are well ahead of the average over the last 12 years.
Affordability across other cities is more in line with the long run average, although strong house price growth in Bristol in the last two years has pushed the price to earnings ratio to 9.2. Three cities have price to earnings ratios that are below the long run average, namely Glasgow, Liverpool and Newcastle where house price growth is starting to increase off a low base.
‘As affordability levels become stretched, fewer households can participate in the market which will lead to reduced levels of turnover and a resulting slowdown in the rate of house price growth,’ the reports adds.