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UK Cities House Price Index - August 2017

On 28 September, 2017
  • UK city house price inflation at 4.9%, down from 6.6% in August 2016.
  • Manchester is the fastest growing city (7.3%). The upward momentum in house price growth across regional cities shows no sign of slowing. Real house price falls in London a drag on headline growth.
  • Total value of all private homes across the 20 UK city index exceeds £3.0 trillion (£3,000bn). There is £2.4 trillion of housing equity across UK cities and a major opportunity for product innovation.

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 growth 4.9% yoy

UK City house price inflation is running at 4.9% compared to 6.6% in August 2016 (fig. 1). After weak growth over 2016H2, the 3 month growth rate has increased over recent months.

Falling unemployment and record low mortgage rates are supporting demand as house prices in large regional cities continue to increase off a low base (fig.2). Manchester is the fastest growing city (7.3%), followed by Birmingham (6.7%) and Edinburgh (6.6%).

In contrast, low house price inflation in London is acting as a drag on the headline rate of growth. House prices in London are currently falling in real terms. The nominal growth rate of 1.9% is below the general rate of inflation (2.9%, CPI). Other high capital value cities such as Cambridge and Oxford have also registered a steep slowdown in the rate of price inflation over the last 12 months as affordability pressures constrain housing demand.

Value of housing across UK cities exceeds £3.0trn

Residential values have been rising for eight years, boosting the total value of homes and the amount of equity locked up in housing. Using Hometrack’s automated valuation model we estimate that the total market value of private housing across the 20 city index is £3.013 trillion (£3,013bn). This is 43% of the value of the whole UK housing market (£7trn or £7,000bn). The value of housing in UK cities has grown by £89bn over the last 12 months.

London City, which covers London and its commuter hinterland, contains 39% of the homes across the 20 city index but accounts for 66% of the total value of housing (£2.0trn or £2,000bn). Birmingham (£152bn) and Manchester (£133bn) are the next highest value cities, together accounting for 10% the value of housing within UK cities. To put these numbers in context, the market capitalisation of FTSE 100 companies stands at £1.9trn while total mortgage debt is £1.322trn.

Source: Hometrack House Price Indices
Fig. 1 - City house price inflation – % yoy
Hometrack UK Cities Index
Fig. 2 - House price index from 2007 - selected cities
Source: Hometrack House Price Indices

Housing equity in cities exceeds £2.4trn

At the end of 2016 there was £610bn of outstanding mortgage debt secured against the value of housing across the 20 cities. This mortgage debt represents 20% of the value of all private housing, leaving £2.4trn of housing equity across UK cities. Figure 3 plots the proportion of housing value that is accounted for by outstanding mortgages and housing equity by city.

Housing equity as a share of private housing value ranges from 87% in Oxford to 69% in Aberdeen. A significant amount of this equity is accounted for by homes owned with no mortgage at all, typically older households who have paid off their mortgage.

Cities that have recorded the highest house price growth in recent years have a higher share of equity as a proportion of total market value. Conversely cities that have registered weak price growth have a lower proportion of housing equity.

Developing ways in which households can leverage or access this housing equity is a large opportunity for those developing financial or housing products to help households release equity while staying in their home, or to free up equity by moving home.

Fig. 3 - % housing value split by equity and debt
Fig. 3 - % housing value split by equity and debt
Source: Hometrack, UK Finance - lending by postcode
UK Cities House Price Index - August 2017
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