City level house price inflation over the first three months of 2016 was 4.2% – the highest rate of quarterly growth for 12 years – following a boost in demand ahead of changes to stamp duty.
The latest Hometrack UK Cities House Price index reveals that house price growth across UK cities in the past year was 10.8%, outstripping the 8.7% reported across the rest of the UK.
The highest increase in the last quarter was recorded in Liverpool as prices rose off a low base and closed the gap to other major cities such as Manchester and Leeds where house price growth is running at over 7% per annum.
Hometrack said tougher lending criteria for buy-to-let investors and changes to tax relief on mortgage interest payments have pushed investors to search for higher yielding property. This means more investment in lower value cities, with lower buying costs, and further support for continued house price growth.
Richard Donnell, insight director at Hometrack, said: “The acceleration in growth in the last quarter has, in part, been down to stronger demand from investors, especially those searching for higher yielding property and seeking to beat the stamp duty deadline.
“With that deadline now passed, the question is how weaker investor demand will impact house price inflation in the second quarter of 2016. Especially at a time when home buyers start to consider the implications of the EU referendum for the economy and mortgage rates.
“We believe house prices will continue to rise but a moderation in investor demand and greater caution in the run up to the EU referendum will limit further acceleration in prices. Most likely the rate of growth will slow more rapidly in high value, low yielding cities such as London where prices will be more responsive to weaker investor demand.”
Tanya Jackson, Yorkshire Building Society’s head of corporate affairs, said: “The surge of landlords looking to beat the increase in stamp duty boosted house prices in the first quarter, particularly in areas which offer higher rental yields. However, with the new rules coming into force earlier in April, the question now is how the market will react to the upcoming EU referendum.
“We may see more subdued growth in the run up to the EU vote as people wait until they can be more certain of the outcome and its impact on the economy. The outlook beyond that will be in part influenced by the EU referendum decision but, regardless, demand is likely to continue to outpace supply, causing house prices to increase beyond wage growth in the future.
“The UK population’s desire to own a property remains strong, where our research found that 69% of young Britons believe homeownership is essential to their success in life. Homeownership is clearly a priority for many, and facilitating homeownership should be equally as high on the government’s agenda so that we can help more people to realise their aspirations in life.”
