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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.
Headline UK city house price inflation was 9.5% in July, down from 9.9% in June. Bristol remains the fastest growing city (14%), followed by London (11.7%). House price inflation in Aberdeen is falling at a slower rate of -8% with prices up 2% in the last quarter, a sign the market may have now adjusted to the impact of the fall in the oil price on demand.
Focusing on growth in the last quarter (fig.1), the highest rate of growth have been registered in lower value, higher yielding cities where prices are rising off a lower base – Glasgow (5.2%), Liverpool (4.4%), Manchester and Nottingham (3.4%).
London and Cambridge losing momentum
London has registered a marked slowdown in house price growth over the last three months (fig.2). Average growth in the last quarter was 2.1%, the lowest rate for 17 months as weaker investor demand, affordability pressures and Brexit uncertainty impact demand at the same time as supply has risen. This is still an annualised rate of 8%+ but the signs are growth will slow further over the coming months. Cambridge posted a 1% price fall over the last quarter with prices more sensitive to weaker demand although the annual rate of growth is still running at 7.1%.
Large, regional cities show no sign of a slowdown
Outside southern England, large regional cities such as Leeds, Manchester, Birmingham and Cardiff are registering annual growth rates of 7-8% per annum. House price growth in the last quarter suggests no imminent slowdown with house price inflation stable for now.
What outlook for the rest of the year?
The latest official data from HMRC on housing sales to July show seasonally adjusted volumes down 8% year on year but data is limited as to how this plays out across cities. Update analysis of recent listings data suggests sales volumes are continuing to hold up outside London and southern England. The greatest divergence in new supply and sales remains in London, consistent with slower growth recorded by the Hometrack index.
In the absence of adverse economic trends impacting employment and mortgage rates, the near term outlook is for a continued slowdown in London towards mid-single digit growth and stable growth rates in regional cities as households’ price record low mortgage rates into city house price where affordability remains attractive.
We continue to believe that turnover will register the brunt of the slowdown in London. In the face of lower sales volumes agents will look to re-price stock in line with what buyers are prepared, and can afford, to pay. Past experience shows that this process can run for as long as 6 months and relies, in part, in how quickly sellers are willing to adjust to what buyers are prepared to pay.Fig. 2 – London City – annual and monthly growth
City house price growth slows to 6.4%. Manchester fastest growing city as London slips to 10th in growth rankings. New analysis of city turnover reveals large increases and falls. Overall city turnover expected to be flat in 2017.
City level house price inflation is running at 6.9% while growth in London (6.4%) is running at its lowest level for 4 years and set to slow further. House prices in many regional cities where the recovery has been muted have material upside so long as the economy continues to grow and mortgage rates remain low.
House price inflation in Manchester hits 12 year high. Growth in regional cities continues to overhaul London which dropped to 7th in the city house price growth rankings for 2016. Bristol is still the fastest growing city +9.6% but could be overtaken by Manchester in Q1.
City level house price growth is running at 7.7%, in line with our projections this time last year. We expect city house price growth to slow to 4% in 2017 with weaker growth in London and other southern cities offset by sustained growth in large regional cities.