House price growth in London is now being outpaced by regional cities such as Bristol and Manchester and is expected to grind to a halt later in the year.
The latest Hometrack UK Cities House Price Index reveals that house price growth in London has fallen to 6.4% – the lowest level since 2013.
House prices in London are up 85% since 2009, but Hometrack expects the rate of house price inflation to slow towards 0% over 2017.
The headline rate of growth for UK cities is now running at 6.9%, compared to 7.9% in January last year.
The housing recovery in large regional cities such as Newcastle, Glasgow and Liverpool has been far slower than in the capital– house prices are only up between 13% and 16% since the downturn.
Bristol remains the fastest growing city in the index with annual growth holding steady at 9.5%, although down from a recent high of 14% recorded in June 2016.
Outside of southern England, Manchester is registering the greatest uplift with an increase of 8.3% in the last year.
In addition to Manchester, London has also now been overtaken by Birmingham, and Liverpool, where similarly prices are rising off a lower base and affordability levels remain attractive.
Slowing growth in the capital is due to the drag on prices in the Prime Central London housing market. This is a result of increases in stamp duty and the Brexit vote, which have weakened demand by up to 3%.
Based on this trend, Hometrack expects the rate of house price inflation for London to continue to slow towards 0% over 2017.
Richard Donnell, Insight Director at Hometrack, said: “Growth in London has been superseded by large regional cities such as Manchester, Liverpool and Birmingham. When you consider that house prices in London are 85% higher than they were in 2009 it is not surprising that the pace of increases is slowing toward a standstill as very high house price increases mean affordability is stretched.
“The contrast with large regional cities outside of London and the South East couldn’t be starker. They continue to register robust levels of house price inflation in excess of 7%. The question is how much further house prices in regional cities could have to run were house prices to fully ‘price in’ low mortgage rates supported by rising incomes and employment.
“In our view there is material upside for house prices in the coming years in many cities where the recovery since 2009 has been limited. Typically those where investment in employment, infrastructure and regeneration will help stimulate the local economy. The timing and scale of future house price growth will, of course, depend upon the outlook for jobs, incomes and mortgage rates.”
Jeremy Duncombe, director of Legal & General Mortgage Club, said: “London house price growth has slowed to its lowest level in four years and may well slow further in the coming months – stamp duty appears to be killing off the rapid inflation in the capital. In practice, this means other cities such as Birmingham and Liverpool are taking up the mantle of fastest growing house prices.
“Average UK house price inflation remains 6.9% year on year. This is pushing home ownership into an unattainable dream for many renters across the country. It could be argued that the housing white paper didn’t go far enough, but any progress will be welcomed by first time buyers and those looking to move up or down the ladder.”
Hometrack UK City House Price Index
| City | Average price Jan 2017 | % year-on-year Jan 2017 | % last quarter |
| Bristol | £263,200 | 9.5% | 1.8% |
| Oxford | £430,200 | 9.2% | 4.1% |
| Manchester | £150,600 | 8.3% | 2.0% |
| Southampton | £223,200 | 8.0% | 2.1% |
| Birmingham | £147,400 | 7.4% | 1.5% |
| Liverpool | £116,200 | 7.1% | 2.9% |
| Bournemouth | £275,600 | 6.6% | 2.3% |
| London | £486,600 | 6.4% | 1.3% |
| Portsmouth | £221,100 | 6.4% | 1.0% |
| Leicester | £160,500 | 6.0% | 2.5% |
| Glasgow | £115,200 | 5.7% | 0.8% |
| Leeds | £154,700 | 5.5% | 0.9% |
| Nottingham | £140,300 | 5.4% | 1.2% |
| Cardiff | £192,900 | 5.0% | 0.4% |
| Sheffield | £128,500 | 4.0% | -0.1% |
| Edinburgh | £200,700 | 3.7% | -1.3% |
| Newcastle | £123,900 | 3.5% | 1.5% |
| Belfast | £126,100 | 2.8% | -0.2% |
| Cambridge | £418,100 | 2.2% | 0.0% |
| Aberdeen | £186,200 | -3.7% | 2.8% |
| 20 city index | £245,900 | 6.9% | 2.8% |
| UK | £205,800 | 6.1% | 1.4% |
Source: Hometrack UK City House Price Index
