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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.
City house price growth outstrips UK
House price inflation across the UK Cities House Price Index is holding steady at 8.5% per annum, higher than the 5.7% growth recorded twelve months ago. Residential values across UK Cities are registering a higher rate of growth than the overall UK market where house price growth is running at 7.2% per annum. House price inflation continues to run more than three times faster than the growth in earnings as household confidence improves, earnings rise ahead of inflation and low mortgage rates make housing affordable for those with equity.
Growth rates rising across 11 cities
Eleven cities are registering higher rates of capital growth than in January 2016. The majority of these are large regional cities outside the south east of England – Liverpool, Manchester, Cardiff and Birmingham. These cities have attractive affordability on a price/earnings ratio measure with house prices rising off a low base. Annual house price growth currently ranges from 6.6% in Liverpool to 8.0% in Birmingham (Fig.1).
Growth slower across nine cities
Nine cities are registering house price growth lower than at the start of 2016 with the greatest slowdown led by Cambridge, Oxford, London and Aberdeen. Slower growth is a result of affordability, economic and market confidence factors.
London records slowest growth for 20 months
In the last quarter, London residential values have recorded their lowest growth rate since January 2015. Fears of a potential housing bubble, tightening credit terms and concerns over a mansion tax impacted demand for housing in London at this time.
In the last quarter, London residential values have increased by 0.9%, compared to an average of 3.0% over the last 3 years. The recent slowdown is yet to impact the annual rate of growth which is running at 10% but is expected to move towards 5% by the year end.
Supply/demand balance varies across cities
These patterns of relative house price growth are re-enforced by an analysis of property listings and sales data over the last 3 years. Sales rates are close to matching the flow of new property to the market, creating scarcity and supporting house price growth.
In contrast, London has the weakest market conditions with the new supply of homes coming to the market growing faster than sales which have fallen back in recent months on weaker demand. The ratio of sales to new supply is at its highest level for 3 years, re-enforcing the outlook for a continued slowdown in the rate of house price growth across London in the months ahead.
Demand from buyers searching for space, and making lifestyle changes after consecutive lockdowns, has further to run. Balancing this however, will be the more challenging economic environment as we move into Q4.
Mismatch between supply and demand still driving house price growth, now at 6.0%
The ‘search for space’ has been a factor driving price growth for houses to 7.3%, compared to 1.4% growth in average prices for flats over the last year
UK house prices have increased by an average of £10,246 per property over the past 12 months - the largest rise in value recorded since October 2016.