Annual house price growth hit 10.1% in November, driven by a “chronic shortage” of homes for sale and rising demand.
This means the average income to afford a home in a UK city with a typical 76% mortgage is £49,700, up from £45,200 a year ago.
According to property analyst Hometrack, the fastest rate of growth in the year to November was in London at 13.3%, where average house prices have jumped £52,900.
Hometrack said transaction volumes for the year were 5% lower as fewer homes came to the market for sale causing scarcity of supply. Moving amongst existing mortgage homeowners was at its lowest for a decade, accounting for 33% of sales compared to 50% in 2007.
The weakest rate of growth was in Aberdeen where average house prices have fallen by 2.0% following a 12% increase in 2014.
The city with the strongest turnaround in the past year was Glasgow, where growth has increased 1.8% in the past 12 months to 8.0% as prices recover off a low base in one of the most affordable cities covered by the index.
House price growth in 2016 looks set to come from regional cities which have recorded much lower levels of house price growth in the last few years and affordability levels are far less stretched.
Richard Donnell, director of research at Hometrack, said: “The scarcity of homes for sale looks set to remain a feature of the market in 2016. This will only ease once we see greater levels of output from home builders and renewed activity amongst the 8 million existing mortgaged home owners.
“Questions over the sustainability of house price growth are being raised as house prices accelerate on growing scarcity and lower sales volumes, especially in the high growth markets such as London. The greatest focus is on the influence of investor buyers, who we estimate account for one in every five buyers nationally. This group don’t need to buy homes and could react differently to home owners in the face of changing market or economic conditions.”
The recent policy interventions by the government are likely to have a mixed impact on the market, Hometrack said.
Hometrack predicts investor demand in 2016 will weaken as a result of stamp duty and tax relief changes announced earlier in the year. Tax relief changes are also likely to result in some modest dis-investment as investors de-leverage their portfolio. Despite this, private investors will remain an important feature of the housing market but scale growth in investor demand will slow in 2016.
“Assuming the first interest rate rise is in the second half of 2016 then we expect 7% growth in city level house prices over 2016 with housing transactions broadly flat. This is based on a slowdown in growth across London as affordability pressures and lower investor demand ease the upward pressure on house prices. Earlier and faster rate rises than those assumed by the market would reduce the scale of house price growth as they would further impact investor demand and mortgage affordability,” said Donnell.
