House price inflation across the 20 largest cities in the UK was 6.4% in the first half of 2015, according to the Hometrack UK Cities House Price Index.
Glasgow recorded the third fastest growth in the first half of 2015 after Oxford and London as the housing recovery spreads. Aberdeen was the weakest performer with house prices flat in the first half of the year.
The year on year rate of growth across all 20 cities covered by the index is 8.4% with an average price of £226,200. At a city level this ranges from 11.6% in Cambridge to 2.9% in Liverpool. Oxford and Cambridge continue to perform like extensions of the London market with all cities having a very similar profile of house price growth over the last eight years.
Hometrack said the headline rate of growth across the 20 cities index looks set to move higher during the second half of the year as continued growth in house prices pushes the year on rate towards 10% as the recovery spreads and households continue to price low mortgage rates into house prices.
The firm said the greatest risk on the horizon, is an increase in interest rates, recently highlighted by the Bank of England Governor. 57% of outstanding mortgage debt is on variables rates which is lower than the 73% high registered in mid-2012. While a year’s worth of new buyers have been subject to tougher affordability tests the majority of mortgagees have not. While many homeowners have continued to pay off debt while rates have been low any increase in mortgage rates is likely to impact market sentiment which given the shortage of supply would result in a marked slowdown in the rate of house price growth, Hometrack said.
Richard Donnell, director of research at Hometrack, said: “Rising demand for house against a backdrop of low supply continues push city level house prices higher. At 8.4%, city level house price inflation is running higher than the overall UK rate. While house price growth might moderate slightly in H2 it looks increasingly likely that city level house price growth will return to double digits by the year end.
“The greatest risk facing the housing market is an upward movement in interest rates which would check market sentiment, cool demand and result in a marked slowdown in house price growth.”
Jeremy Duncombe, director of Legal & General Mortgage Club, said: “House prices increased well beyond the level of inflation in the first half of the year, despite activity in the market being relatively subdued. The MPC’s recent comments hinting at a rate increase will create a greater sense of urgency among people wanting to own their own home, and this, combined with rising wages and low inflation figures, will drive up demand in the remainder of the year. Banks will also look to price in a rise before one is announced, making it more important than ever for those looking to remortgage to secure a deal before the best rates disappear from the market.
“The opening of the demand flood-gates is likely to drive house price inflation to new highs in the future unless more houses are built to bring balance to the market. The UK housing market needs an extra 250,000 houses to be built per year in order to stem house price inflation and make homes more affordable for aspiring homeowners.”