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October 2015 - Hometrack UK Cities House Price Index

On 20 November, 2015
  • City level house price inflation running at 9.4% per annum – set to reach 10% by year end.
  • Impetus for growth coming from large regional cities in early stages of house price recovery where rising demand is resulting in levels of house price growth not seen since 2007.
  • Outlook over next 12 months is a balance between how much London slows on affordability pressures and the scale of recovery in cities where price growth has been below average.

Hometrack’s UK Cities Index records annual house price growth of 9.4% - faster than the 7.1% UK wide growth rate. City level house price inflation looks set to reach 10% by the year end. Large regional cities outside southern England are recording an acceleration in growth off a low base. Glasgow, Manchester and Liverpool are registering the highest rates of annual house price growth since 2007.

Large regional cities add impetus to price growth
Hometrack’s UK Cities Index, covering the most urbanised 5% of the UK with half the value of UK homes, is recording annual house price growth of 9.4% - faster than the 7.1% UK wide growth rate (fig.1.). As predicted earlier this year, city level house price inflation looks set to reach 10% by the year end.

Large regional cities outside southern England are recording an acceleration in growth off a low base. Glasgow, Manchester and Liverpool are registering the highest rates of annual house price growth since 2007. Improving consumer confidence and low mortgage rates are boosting demand in cities where the housing recovery is in its infancy.

Glasgow house prices currently average £110,000, less than half the £229,300 average price across all the 20 cities measured by the Hometrack UK Cities index.  House prices in Glasgow stopped falling three years ago and have since risen by 13%. In the last 12 months they are up by 8.3%, which is the highest rate of annual growth across the city since August 2007.

Table 2 - City level summary, October 2015
Source: Hometrack House Price Indices

Recovery 3 years old in Manchester and Liverpool
In a similar vein, Manchester house prices have been recovering since 2012 and average house prices have risen by 17% over this time to £141,200. In the last 12 months house prices across Manchester have grown by 7.0%, the highest rate of growth since July 2007.

Liverpool has registered the weakest house price performance of all the British cities covered by the index since the global financial crisis. House prices declined between 2007 and early 2013 and have since increased by just 10.5%. In the last 12 month year on year growth has risen to 5.1%, the highest since August 2007.  Despite this modest recovery, the average price of £109,800 is still 13% lower than the 2007 peak.   

House price recovery impacts activity
These city level indices show just how varied the housing recovery has been over the last six years. This varied pattern of growth impacts the loan to values for existing home owners and their capacity to borrow as well as investment decisions by developers and investors who are increasingly focused on finding better value in the regions outside London.

Fig. 1 – UK v City level house price inflation (%yoy)
Source: Hometrack House Price Indices
Fig. 2 – Rebound in house prices - selected cities
Source: Hometrack House Price Indices

Central London goes ex-growth
The tentative recovery in large regional cities contrasts strongly with the rise of London house prices where average prices are up by 70% since 2009 (and by over 100% in the highest value markets). It is these high value markets that are now recording some of the weakest levels of house price growth (Kensington and Chelsea -2.6%, City of Westminster +1.3%) as tax and currency changes impact demand after a period of stellar price appreciation.

Modest slowdown in rate of growth still likely
Last month we reported early signs of a slowdown in the upward momentum in house prices which we still believe will materialise in the run up to the year end. The month on month change in the cities index in October was slightly lower than the last 4 months (0.9% in October versus an average of 1.2% over the last 4 months).

Outlook a balancing act
The outlook for the next 12 to 18 months will be a balance between how much the high growth London markets will slow and how much more momentum will come from cities where the housing recovery is still in its infancy. Our views on the outlook for 2016 will be covered in the next month’s index report.

Table 1- UK 20 city index summary, October 2015
Table 1- UK 20 city index summary, October 2015
Source: Hometrack House Price Indices
October 2015 - Hometrack UK Cities House Price Index
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