London House Price Growth Drops to 20-Month Low

London house price growth has dropped to a 20-month low, according to the latest UK Cities House Price Index from Hometrack.

City level house price growth is currently running at 8.5%, but growth in London has slowed rapidly over the last quarter to the lowest level of growth for 20 months. 11 cities are registering higher growth than at the start of 2016, while nine are slowing.

City house price growth outstrips UK 

House price inflation recorded across UK cities by Hometrack is holding steady, at 8.5% per year – higher than the 5.7% growth recorded 12 months ago. House prices in the UK’s major cities are experiencing a higher rate of growth than the overall UK market, where property value growth stands at 7.2% per year.

House price growth continues to run more than three times faster than growth in earnings, as household confidence improves, earnings rise ahead of inflation and low mortgage rates make housing affordable for those with equity.

Growth rates increasing in 11 cities

11 cities in the UK are recording higher rates of capital growth than in January 2016. The majority of these are large, regional cities outside of the South East, including Liverpool, Manchester, Cardiff and Birmingham. These cities have attractive affordability in terms of house prices to earnings ratio. Annual house price growth currently ranges from 6.6% in Liverpool to 8.0% in Birmingham.

Growth slower across nine cities 

Nine cities have seen lower house price growth than at the start of the year, with the greatest slowdown led by Cambridge, Oxford, London and Aberdeen. Hometrack puts slower growth down to affordability, economic and market confidence factors.

London house price growth slowest for 20 months 

In the last quarter, London house price growth has dropped to the lowest rate since January 2015. Fears of a potential housing bubble, tightening credit terms and concerns over a mansion tax have impacted demand for housing in London over recent months.

On a quarterly basis, house prices in London have risen by 0.9%, compared to an average of 3.0% over the last three years. This recent slowdown is yet to impact the annual rate of growth, which currently stands at 10%, but is expected to drop towards 5% by the end of the year.

Supply/demand balance across cities

Hometrack’s study of supply and demand relative to house price growth is re-enforced by an analysis of property listings and sales data over the past three years. Sales rates are close to matching the number of new properties onto the market, which creates scarcity and supports house price growth.

In contrast, London has the weakest market conditions, with the supply of new homes on the market growing faster than sales, which have dropped back in recent months due to weaker demand. The ratio of sales to new supply is at its highest level for three years, further emphasising the outlook for a continued slowdown in the rate of London house price growth over the coming months.

The Founder and CEO of eMoov.co.uk, Russell Quirk, comments on the figures: “Whether you believe that Brexit has had an impact on the property market or not, this latest data by Hometrack shows that, in the last quarter, price growth has slowed to a 20-month low in the capital. It’s clear that the European limbo that the country as a whole is currently stuck in, until Article 50 is triggered, has led to an air of panic, with the ratio of sales hitting a three-year high.

“This imbalance of supply outstripping demand is somewhat of an anomaly for those selling in London, and so the resulting fall in prices has probably come as more of a shock than it actually is.

“This supply-demand seesaw is the basic premise on which the UK market and the value of property is decided on. It just so happens that London is currently sitting at the bottom end of this seesaw, along with eight other major UK cities.”

However, he adds: “This said, it’s still home to the highest average house price in the country and, year-on-year, is just one of two cities to have enjoyed double-digit price growth.

“It is important to note that more than half of the cities monitored in the Hometrack index are recording higher annual growth rates than they were in January, so whilst London is cooling, the UK market as a whole doesn’t seem to be feeling the chill.”