Larger regional cities lead house prices growth in the UK
House prices in key UK cities increased by 5% in the 12 months to January, led by growth of 7.7% in Edinburgh, but a number of cities are still recording a decline in values year on year.
Indeed, the Hometrack UK cities house prices index shows that it is regional cities in the North that are leading the growth. After Edinburgh the next strongest growth was 7.3% in Birmingham, followed by 6.7% in Manchester and 6.2% in Liverpool.
The index report suggests that regional cities could continue to dominate with room for a further 20% to 30% rise in prices over the next three to four years.
‘We expect house prices in regional cities such as Birmingham and Manchester to increase by 20% to 30%. This is based on our analysis of how the last housing cycle unfolded and adjusting for today’s policy environment. It assumes mortgage rates remain low by historic standards and the economy continues to grow. At current growth rates this will take three to four years to feed through into house prices,’ it says.
The index also reveals that several cities have registered real price falls including London, Southampton, and Oxford where prices are falling in nominal terms and Cambridge and Aberdeen with actual price fall of 1.1% and 6.6% respectively.
The report explains that the level of house price inflation since the end of the downturn in 2009 varies widely with growth rates ranging from 6% in Aberdeen to 86% in London. Oxford and Cambridge have performed like extensions of London, while robust price growth in Bristol has resulted in a 70% increase since 2009.
‘There is a clear gap to the remaining cities, each of which have experienced varied growth. These differentials are explained by economic and demand side factors. A similar pattern of relative performance was seen mid-way through the last housing cycle,’ it points out.
‘Cities outside southern England have further room for house price growth. We do not expect growth to match the increase registered in London as the market dynamics are different such as high levels of overseas and investor buying,’ it adds.
Hometrack also says that there are also questions over the sustainability of pricing in London where gross yields are sub 4.5% and affordability levels are at an all-time high. It expects average house prices in London to drift lower in real terms in the coming two to three years with lower turnover creating scarcity.
‘Larger regional cities that have required a much longer recovery period are now pulling away where price growth is concerned and have become a much more attractive proposition for buyers,’ said Russell Quirk, chief executive officer of Emoov.