The London housing market is now “firmly stuck in neutral”, with prices falling amid growing concerns over Brexit and soaring inflation.
The latest Hometrack UK Cities House Price Index reveals that house prices in the capital increased by 0.5% in the three months to September.
With growth running at 2.3% below the current inflation rate of 3%, this means that house prices across London are falling in real terms.
House price growth across many southern cities also remains flat. In Cambridge (2.3%), Oxford (2.3%) and Cardiff (2.4%) the annual rate of growth is below the general rate of inflation.
In contrast, cities in Scotland have seen an acceleration in house price growth, with sales increasing by 20% over the last quarter compared to the previous 12 months.
While London sits towards the foot of the 20-city index growth league table, Scotland’s capital Edinburgh now tops the list of UK cities ranked by price growth at 6.7%. Manchester has dropped to second place with annual growth of 6.5% followed by Birmingham at 5.9%.
The overall the headline rate of annual growth across UK cities is running at 4.9% compared to 6% twelve months ago.
Richard Donnell, research and insight director at Hometrack, said: “The London housing market is now firmly stuck in neutral. Stretched affordability, low yields for investors and concerns over Brexit and its impact on employment are weighing on market sentiment. As a result, further house price falls in real terms across London are inevitable as prices re-align to what buyers are willing to spend. Consequently, nominal house price inflation in London looks set to remain between 1% to 3% over the next six to twelve months.”
“However, house prices look likely to continue rising in regional cities as affordability remains attractive and values are growing off a low base. The rate of growth is expected to moderate around its current level and will be tempered by economic and sentiment factors such as the squeeze on incomes from rising inflation and concerns over the economic outlook. Talk of a possible increase in interest rates and any knock-on effect for mortgages, is also likely to further temper demand.”
“A modest increase in mortgage rates will primarily impact sentiment and levels of market activity. Mortgage rates remain low by historic standards and for the last three years, all homeowners buying with a mortgage have had to prove they can afford a much higher mortgage rate. As a result, recent sales levels already reflect the ability of buyers to afford higher borrowing costs which should mean there is capacity for borrowers to absorb increased monthly repayments.”
City Level Summary for September 2017
| City | Current price | %yoy Sep-17 | %yoy Sep-16 |
| Edinburgh | £219,500 | 6.7% | 3.8% |
| Manchester | £156,800 | 6.5% | 6.6% |
| Birmingham | £153,200 | 5.9% | 6.6% |
| Bournemouth | £285,100 | 5.4% | 6.4% |
| Leicester | £163,300 | 5.4% | 5.5% |
| Glasgow | £120,300 | 5.3% | 1.8% |
| Bristol | £276,900 | 5.1% | 11.8% |
| Portsmouth | £230,300 | 5.1% | 8.1% |
| Nottingham | £144,200 | 5.0% | 5.5% |
| Southampton | £222,600 | 4.4% | 7.4% |
| Leeds | £161,100 | 4.3% | 4.9% |
| Sheffield | £135,100 | 4.2% | 3.7% |
| Liverpool | £114,800 | 3.2% | 2.2% |
| Belfast | £129,100 | 3.1% | 2.9% |
| Newcastle | £125,900 | 3.0% | 1.5% |
| Cardiff | £198,000 | 2.4% | 6.4% |
| London | £493,800 | 2.3% | 8.9% |
| Oxford | £427,100 | 2.3% | 7.8% |
| Cambridge | £433,600 | 1.7% | 5.1% |
| Aberdeen | £173,900 | -1.8% | -10.6% |
| 20 city index | £251,600 | 4.9% | 6.0% |
| UK | £211,200 | 3.6% | 6.0% |
Source: Hometrack House Price Indices
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