Property prices in London are falling in real terms, described as being ‘stuck in neutral’ by the latest Hometrack UK Cities House Price Index.
Average house prices in the capital were up by just 0.5 per cent in the quarter ending September 2017, as the annual rate of growth reached 2.3 per cent due to lower turnover. However, this does not equate to true growth, with the general rate of CPI inflation running at 3 per cent meaning that 85 per cent of the areas covered by the London City index have seen house prices fall in real terms. House price growth across several southern cities also remains stagnant. For example, Cambridge saw growth of just 2.3 per cent, whilst Oxford and Cardiff saw growth of 2.3 per cent and 2.4 per cent respectively, placing the annual rate of growth below the general rate of inflation.
In contrast, Scottish cities are thriving. Housing sales in Scotland are up 20 per cent on the previous year, with Edinburgh topping the list of UK cities ranked by price growth. The Scottish capital recorded a growth rate of 6.7 per cent, leading ahead of Manchester at 6.5 per cent. Glasgow has also saw a rise in annual house price growth, up from 1.8 per cent a year ago to 5.6 per cent today.
Overall the headline rate of annual growth across UK cities stands at 4.9 per cent, down from 6 per cent twelve months ago.
Research and Insight Director at Hometrack, Richard Donnell, commented: ‘The London housing market is now firmly stuck in neutral. Stretched affordability, low yields for investors and concerns over Brexit and its impact on employment are weighing on market sentiment. As a result, further house price falls in real terms across London are inevitable as prices re-align to what buyers are willing to spend. Consequently, nominal house price inflation in London looks set to remain between 1 per cent to 3 per cent over the next six to twelve months. A modest increase in mortgage rates will primarily impact sentiment and levels of market activity. Mortgage rates remain low by historic standards and for the last three years, all homeowners buying with a mortgage have had to prove they can afford a much higher mortgage rate. As a result, recent sales levels already reflect the ability of buyers to afford higher borrowing costs which should mean there is capacity for borrowers to absorb increased monthly repayments.’