House price inflation narrows as seven cities slow and eleven cities grow
05 February 2015
Hometrack has revealed in its latest UK Cities House Price Index that UK house prices rose by 0.4% in December to 8.3% year-on-year (4.5% in 2013). However, the rate of growth plateaued and is set to slow in 2015.
Although the recovery in UK house prices is spreading across the whole of the country, the gap between the best and worst performing cities has narrowed to its lowest level for 15 years. Now, there are two distinct groups of cities. Those that are accelerating off a low base after years of either static or sinking prices and those that have enjoyed strong house price recovery over the last two years, but where house prices are now starting to slow due to cooling demand and affordability restraints.
In total, eleven cities recorded an acceleration in house price inflation in the second six months of 2014. This burst was led by Edinburgh, Aberdeen and Glasgow, where demand for housing was boosted after the ‘No’ vote in the Scottish referendum. Newcastle, Leicester and Liverpool also saw their rate of growth continue to rise off a low base in the second half of 2014. House prices in these cities were 9%, 2% and 15% below their 2007 levels.
Further south, Oxford, London, Cambridge and Bristol all recorded a slowdown in the rate of growth over the second half of 2014 off a high, double digit base. Slower growth in housing demand, tougher mortgage checks (thanks to the introduction of the Mortgage Market Review) and affordability factors were behind the slowdown in these cities where house prices have bounced by as much as 55% from their 2009 lows in recent years.
“House price growth at a city level looks set to converge further in the first half of 2015 as high growth markets continue to slow and lower growth markets start to see growth plateau,” Richard Donnell, Director of Research at Hometrack, said.
“Pent-up demand has fed back into the market in the last 2 years, supported by record low mortgage rates, but mortgage approvals have weakened in the last five months with a knock on impact on house price growth. Low mortgage rates are making housing look affordable but it is the willingness and ability of households to borrow, against the background of greater mortgage regulation, which will most influence the housing market in 2015.”