Despite Central London recording year on year house price inflation of 3% in the first quarter of 2015, the capital’s most expensive boroughs are being eclipsed by growth in large regional cities, according to Hometrack’s latest UK Cities House Price Index.
Newcastle, Sheffield, Manchester, Leeds and Glasgow registered the strongest pick up in house price growth in the first quarter of 2015 as households gain in confidence over the economic outlook and attracted by record low mortgage rates. Together these cities account for 30% of housing stock covered by the Hometrack index and this pick-up in growth is supporting the headline rate of house price growth.
Overall, UK house prices increased by 0.8% in the last quarter to March and by 20.6% relative to the 2009 trough. Average house prices across the 20 cities included in the Hometrack UK Cities Index registered growth of 3.8% in Q1 compared to 3% over the same period in 2014. While the UK picture is polarised by a North – South reversal in house price growth, the London market is divided by its East – West compass points.
The balance of house price growth across the Cities Index for London has shifted from high value markets driven by international capital to the lower value markets favoured by owner occupiers. Newham, Barking and Dagenham, Greenwich, and Croydon registered 14.2%, 12.5%, 12.4%, and 12.1% growth respectively in the last quarter compared to the same period 12 months ago. These boroughs are sustaining the capital’s growth, despite house prices in the affluent Central London areas of Kensington & Chelsea and Hammersmith & Fulham running at just 3.4% and 5.1% respectively.
Hometrack said although house price gains in London’s outlying boroughs have registered off a lower base, they have been driven by savvy homeowners migrating away from the central London domain, which has been monopolised by international buyers. Areas of London that are still undergoing regeneration or are benefiting from new investment have proved popular with owner occupiers priced out of the boroughs favoured by international buyers and investors.
The highest year on year growth rate was recorded in Newham and Barking & Dagenham, where average house prices are £275,000 and £215,000 respectively, and track 33% and 50% below the London average of £417,000.
Richard Donnell, director of research at Hometrack, said: “House price growth is holding up better than expected as a result of a lack of new supply of homes for sale and record low mortgage rates attracting buyers into the market.
“Growth in London is still running in double digits and high capital growth rates in recent years have pushed down average loan to values in London, creating further capacity for additional borrowing for households that can pass tighter affordability tests for new lending.
“The pattern that we are currently seeing in regional cities is similar to what we witnessed in London from 2011 – 2013, except the majority of demand for housing in these cities is coming from domestic owner occupiers. It is not being boosted by international buyers or excess investor demand, as was the case in London, hence the more modest level of price rises compared to recent growth rates in the capital.
“As London’s first time buyers grapple over the affordability of the first rung on the property ladder, there is an opportunity to buy ahead of the curve. Boroughs such as Newham, Redbridge, Greenwich, and Barking and Dagenham offer that elusive mix of short term affordability and good capital growth in the longer term.”