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City level house price growth accelerating: Annual house price inflation across UK Cities is rising once again on the back of low mortgage rates, tight supply and a 32% increase in transactions volumes since April 2015.
City level house price growth accelerating
City level house price inflation is running at 8.5%, up from 7.2% in April (figure 1). House prices are up by 4.3% in the last 3 months – the highest quarterly growth rate for 11 years.
All cities with the exception of Aberdeen are registering house growth ahead of growth in average earnings (currently 2.4%). The highest year on year growth is 10.9% in Cambridge followed by Oxford, London and Bristol. The lowest growth rate is being registered in Aberdeen (-0.7%) where the weakness in the oil price is impacting the local economy and demand for housing. Other cities with below average house price growth are Newcastle, Liverpool and Sheffield where annual growth is running between 2.5% and 4.5%.
Table 1 - UK 20 city index summary, July 2015
Source: Hometrack House Price Indices
There is room for further catch-up in house prices. Nine of the twenty cities still have average prices that are lower than 2007 levels although this gap is narrowing rapidly. The relative performance of house prices since 2007 remains wide and reflects different economic and demand side drivers of house prices.
Average prices in London are 40% higher than in 2007 and 14% higher in Bristol. Cities such as Edinburgh and Glasgow have registered a resurgence in growth more recently post the Scottish referendum although average prices remain 2% and 11% below their peak.
City level house prices register the highest quarterly growth for the last 11 years
More growth to come in near term
Low mortgage rates, economic growth and rising earnings will continue to stimulate demand and put an upward push on house prices across most cities. As an international city, London is out on its own setting new highs for prices and (un)affordability. How long this can be sustained is down to the prospects for the different segments of demand, specifically international buyers, domestic investors and domestic home owners. Overall we expect city level house price inflation to remain on course to end the year at 10% year on year.Figure 2 - House price inflation by city (%yoy)
City level house price growth is holding steady at 8.4%. This month we reveal an updated view on city level affordability. This finds that after an 86% uplift in house prices since 2009, the price to earnings ratio in London now sits above 14x with Oxford and Cambridge close behind. Other cities are at or below their long run average. Read the Report to find out what this means for city level house price inflation.
City level house price growth is running at 8.5% but growth in London has slowed rapidly in the last quarter to the lowest level of quarterly growth for 20 months. Eleven cities are registering higher growth than at the start of 2016 while 9 are slowing.
The pace of city level house price inflation is slowing with growth in the year to August 2016 running at 8.2%. The 20 city index recorded its lowest level of quarterly growth (1.9%) for 6 months as a seasonal lull in market activity and weaker demand post Brexit and the March Stamp Duty change reduce the upward momentum of house price growth
The annual rate of house price inflation across the 20 cities has started to slow after 12 successive months of rising house price inflation A marked slowdown in the rate of growth over the last three months in London is behind the shift in momentum. However, house price growth in large regional cities outside southern England, continues to hold steady at 7-8% per annum with no sign of an imminent slowdown. Aberdeen is also registering a slower rate of price falls compared to recent months.