Annual house price growth across the UK was stable at the end of 2016, standing at 4.5% – the same as 2015 – according to the latest House Price Index from Nationwide.
The study also shows that annual house price growth in London ended the year below the UK average for the first time in eight years.
Following a 0.8% monthly increase in values, the average property price ended the year at £205,898.
Annual house price growth
The Chief Economist at Nationwide, Robert Gardner, comments on the findings: “The story of UK house price growth in 2016 was one of relative stability. Annual house price growth ended 2016 at 4.5%, the same as the rate recorded in 2015.
“There were signs that London’s significant period of outperformance may be drawing to a close. For the first year since 2008, annual house price growth in the capital was lower than the UK average, with prices increasing by 3.7% over the year, down from 12.2% in 2015.
“The south of England as a whole continued to see slightly stronger price growth than the north of England, though the differential narrowed.
“Price growth in Wales, Scotland and Northern Ireland remained subdued, though each saw small gains overall in 2016.”
Outlook for 2017
Annual House Price Growth Stable at the End of the Year
Sharing his predictions for the coming year, Gardner says: “Looking ahead to 2017, house price prospects will depend crucially on developments in the wider economy, around which there is a greater degree of uncertainty than usual.
“Like most forecasters, including the Bank of England, we expect the UK economy to slow modestly next year, which is likely to result in less robust labour market conditions and modestly slower house price growth.
“But we continue to think a small gain – around 2% – is more likely than a decline over 2017 as a whole, since low interest rates are expected to help underpin demand, while a shortage of homes on the market will continue to provide support for house prices.”
Affordability across the UK
He also addresses the striking differences in affordability across the UK: “There has been a marked divergence in house price growth across the UK in recent years, which has translated into a significant difference in affordability across the regions.
“We used regional income data to estimate where in the income distribution a prospective purchaser would lie if they were purchasing the typical first time buyer property in a region, had a 20% deposit and were borrowing four times their (single) income.
“The differences are striking. In Scotland and the north of England, this typical buyer would lie in the 30th income percentile, while in the South West they would be at the 75th percentile and above the 90th percentile in London.
“This picture has shifted over time. In particular, the dispersion or variation in affordability across regions has increased over the past ten years.”
He continues: “Affordability has improved in Scotland, the north, East Midlands and Northern Ireland over the past ten years. By contrast, in London and the south of England, more people have found themselves priced out of the market or had to borrow a greater multiple of their income, though low interest rates have helped to reduce monthly mortgage costs.
“This pattern is reflected in median loan to income (LTI) ratios for first time buyers across the regions. Median LTI ratios are highest in London and the South East (at around four times income) and lowest in Northern Ireland (at less than three).
“As you might expect, there is a strong relationship between affordability in a region and how much first time buyers borrow relative to their income. As affordability becomes more stretched (as measured by higher house price to earnings ratios), the more first time buyers borrow relative to their income.”
Top performing region of 2016
All regions recorded annual house price growth in 2016, with East Anglia topping the chart for the first time since 2010, with average values up by 10.1%.
London experienced a further moderation in the annual rate of price growth, from 7.1% in the third quarter (Q3) to 3.7%. This is the first time since 2010 that London has not ended the year as the strongest performing region and the first year since 2008 that it has been below the UK average.
The north was the weakest performing area, with prices little changed over the year.
Wales recorded a slight uptick in the rate of growth compared to the last quarter, with a 2.4% annual rise. Scotland remained fairly subdued, with prices up by just 2.2% over the year, although this was an improvement on 2015, when Scotland was the only region to see price declines.
The annual rate of growth in Northern Ireland slowed to 0.7%, from 2.4% in the previous quarter.
The average house price in England rose by 0.8% in the final quarter of 2016, and was up by 5.1% over the whole year.
Most southern regions of England, with the exception of East Anglia, experienced a further slowdown in annual price growth compared to Q3. Overall, prices in southern England (the South West, outer South East, outer Metropolitan, London and East Anglia) were up by 5.5% over the year, while in northern England (West Midlands, East Midlands, Yorkshire and the Humber, North West and north), prices increased by 3.8%.
However, in cash terms, the gap in average prices between the south and the north continued to widen, now standing at over £170,000 – around £11,500 higher than a year ago.