Edinburgh, Birmingham and Manchester are among the top regional cities set for an increase in house prices over the next four years, according to Hometrack.
Data from the latest Hometrack UK Cities House Price Index revealed that these cities are expected to close the ‘growth gap’ on London by 20% to 30%.
In nominal terms, average house prices in London have soared by 86% since 2009. Oxford and Cambridge have also performed strongly, followed by Bristol where prices have grown by 70%.
In Aberdeen, however, average house prices are only 6% higher over the same period and 18% in Newcastle – showing a wide variation in growth due to local demand and economic factors.
Currently, Edinburgh (7.7%), Birmingham (7.3%) and Manchester (6.7%) lead the way with above average year-on-year house price inflation. In contrast, house prices in London are dropping in real terms, with the pace of growth in the capital slowing to 1.6% year-on-year. Overall, UK city house price inflation is running at 5%, up from 4% in 2017.
What’s more, cities outside southern England have further room for growth. Hometrack predicts house prices will not match the scale of growth recorded in London since 2009 due to the capital’s underlying market dynamics, such as high levels of overseas and investor buying.
Hometrack also questioned the sustainability of pricing in London where gross yields are sub 4.5% and affordability levels are at an all-time high. With this, Hometrack expects average house prices in London to sink lower in real terms over the next three years with lower turnover – down 16% since 2014 – creating undersupply and supporting price levels.
Richard Donnell, insight director at Hometrack, said: “The income to buy a home in regional cities is well below the London average so in the near term we expect to see rising house prices stimulating additional buying and market activity in those areas.”
“House prices have some way to increase before there is a material constraint on demand. This assumes mortgage rates remain low by historic standards and economy continues to grow.”