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The gap between house prices in London and other major regional cities is at its widest for 20 years, according to the August 2015 UK Cities House Price Index data. Overall city level house price inflation is running at 8.3% up from 6.6% in May.
City level house price growth up for fourth month
City level house price inflation is running at 8.3% per annum, up from 6.6% in May as the growth in demand for housing continues to exceed supply. A 38% uplift in mortgage approvals for home purchase in the last 6 months shows the scale of mortgage based demand attracted by ever lower mortgage rates. A similar expansion has been recorded in sales volumes.
Table 1- UK 20 city index summary, August 2015
Source: Hometrack House Price Indices
Despite the recent increase in market activity, the rate of housing turnover remains low by historic standards at just 5%, or a move every 20 years. Many sales are to buyers with nothing to sell which creates a greater imbalance between supply and demand as stock is replaced at a slower rate. Our latest analysis shows that half of buyers in the first half of 2015 had no property to sell (first time buyers and investors buying with a mortgage or cash). Only a recovery in the rate of moving amongst existing owners or more new supply will ease the current housing scarcity, something that seems unlikely in the near term.
The pricing discount between London and other major regional cities is at its widest level for 20 years.
Broader spread of growth
At a city level the highest rate of growth is 11.2% in Cambridge while the lowest is in Aberdeen at -2%. Compared to a year ago, just five cities are registering a higher rate of annual growth led by Edinburgh and Glasgow. Across the remaining fifteen cities growth has edged slightly lower although the three month growth rates suggest continued near term price rises.
Widest pricing gap between London and major cities
The rise of London house prices has seen the gap between London and other regional cities widen to its greatest level for 20 years. Cities such as Glasgow have average prices almost 75% lower than London with those in Bristol 47% lower. This pricing differential could well assist city regions attract new investment as investors and developers seek to expand in more affordable markets.
The price/earnings ratio for cities shows London now exceeding 12x while many other major cities have ratios that are on a par with their long run average. With mortgage rates still well below their long run average, this highlights scope for further house price inflation as the benefits of economic recovery start to spread across more households.Fig. 3 – Price to earnings ratio - selected cities
City house price inflation is being sustained by above average growth in regional cities while prices in London have stabilised but are falling in real terms. New analysis finds the value of housing across UK cities exceeding £3 trillion of which two thirds is accounted for by London.
City house price inflation is running at 5.3%. The sharp slowdown in London house price growth over the last year has reversed with an increase in the annual rate over the last month rising from 2.3% to 2.8%.
City house price growth is proving resilient with average prices up 5% in 2017H1. Birmingham is the fastest growing city while 4 low growth cities are registering house price falls in real terms.
City house price growth is slower than a year ago but average prices increased 3.5% in last 3 months. There is material upside for house prices outside southern England. In London the rate of growth has dropped from 13% to 3% in the last 12 months.