Annual house price growth has shot up to 10.4% this year compared with 6.6% 12 months ago, according to the latest UK Cities House Price Index from Hometrack.
The report claims that last year’s slowdown in house prices was partly due to uncertainty over the 2015 general election.
The recent surge in property transactions ahead of the 1st April Stamp Duty deadline resulted in most cities recording a sharp increase in monthly house price growth, with the annual rate of inflation higher than 2015’s in 15 of the UK’s 20 largest cities. Cambridge continues to lead the way, with a 15.8% surge, while Aberdeen is the only UK city to buck the upward trend with a decrease of 6.1%.
UK city house price growth
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Hometrack has also analysed the impact of the forthcoming EU referendum on the economy and housing market. The UK Cities House Price Index examines house price growth and property transactions over the past 20 years to determine how external factors affect housing market activity.
The analysis found that uncertainty amongst homebuyers over the outlook for the economy and personal finances tends to have a greater impact on the number of property transactions than house prices.
House Price Growth Up to 10.4% from 6.6% Last Year
The report suggests that were the UK to vote for a Brexit, then there could be a 5-10% reduction in property transactions, which would particularly affect London. A vote to remain would deliver a boost to market confidence and deliver the greatest benefits to large regional cities, such as Manchester, Leeds and Birmingham, where housing demand is growing and current rates of house price growth are likely to be sustained.
The analysis highlights how transaction levels have varied over time and some of the external factors that have influenced the housing market.
Although many associate the decade before 2007 with strong house price growth, the research shows that sales volumes dropped on four occasions in London by as much as 15%, emphasising how the capital is more prone to the impact of external factors.
Across the UK as a whole, a 15% drop in sales was recorded in 2005, largely driven by domestic factors and rising interest rates in 2003/04. Contrastingly, the impact of the 2011/12 Eurozone crisis on property transactions was more muted, as the market was beginning to recover after the 2008 financial crash.
The Insight Director at Hometrack, Richard Donnell, comments on the findings: “The economic impacts of a vote to leave will dictate the impact of the housing market. Our analysis of how the market has responded to external factors over the last 20 years suggests that a vote to leave on 23rd June could result in a 5-10% fall in housing turnover, with London bearing the brunt.
“After a period of strong house price inflation over the last five years, the London market faces greater headwinds irrespective of the referendum vote. Turnover fell 7% last year on the back of affordability constraints and weaker overseas demand. Tax changes for investors will reduce demand and we expect price growth to slow in the near future, even if sterling were to weaken and improve the relative value of central London property.”
Donnell continues: “A vote to remain will have the greatest upside for house prices and transactions in regional cities, where the recovery has been more short-lived and affordability less stretched than in southern cities. The boost to confidence from a vote to remain, coupled with low mortgage rates, would most likely benefit cities such as Manchester, Leeds and Birmingham, as housing demand and price growth seem set to sustain itself.”