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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
Regional cities continue to drive headline house price growth while in London there are signs that the downward pressure on prices is starting to ease on a seasonal increase in activity.
The divergence in house price growth between southern England and regional cities continues with overall HPI at 5.2%. London growth remains slow at +1%, and the greatest downward pressure on prices is being registered in inner London.
The divergence in house price growth between southern England and regional cities continues, with overall HPI at 5.2%. London growth remains slow at +1%.
There has been continued growth in large regional cities, despite house price inflation slowing to 5.4%. ZPG listings data shows discounts to asking prices are narrowing, indicating market conditions are improving across cities outside south eastern England. Increased discounting can be seen in London, where price growth has slowed to +1.8%.