According to the data, house prices are rising faster in Edinburgh (7.1%) and Manchester (7.0%) than in any other major UK city. However, house price growth in London has slowed to 0.4% -a nine-year low.
Prices are now falling in 43% of London’s local authority areas by as much as 3.2%. London is one of five cities including Cambridge, Oxford, Belfast and Aberdeen, where house prices are falling in real terms as growth remains below the current rate of consumer price inflation (2.4%).
The relative price difference with London currently ranges from 88% in Cambridge to 24% in Liverpool. This means that the average value of a home in London is four times more expensive than in Liverpool, three times more expensive than in Manchester and just over twice as expensive than in Edinburgh.
Hometrack expects the gap in prices between London and other UK cities to close further over the next 12 to 24 months as London house prices under-perform the rest of the market.
Its analysis of recent housing cycles shows regional cities could see further price rises of up to 20-25%.
Richard Donnell, insight director at Hometrack, said: “We expect house prices to keep rising across regional cities such as Birmingham, Manchester and Edinburgh over the next two to three years. During this time house price growth in London will remain flat with annual price rises of approximately 0-2%. As a result, the gap between house prices in cities outside of the South East and house prices in London will continue to contract.
Naturally, the relative price gap between cities fluctuates over the course of the housing cycle as supply and demand is affected by factors such as economic growth, job creation, wage increases and the flow of new investment. This has certainly been evident in Aberdeen where the fall in the oil price has impacted housing demand and house prices.
Hometrack expects that Manchester and Birmingham will close the gap to London fastest in the coming years as these cities are likely to see the strongest jobs growth. The level of house price inflation seen in large regional cities during the last peak, between 2000 and 2003, gives a good indication of how much prices may rise this time around. If history is to repeat itself and these cities are to get back to where they were, then prices could increase by as much as 20-25%.”
Graham Davidson, managing director at Sequre Property Investment, had this to say: “The latest Hometrack report cements what we’ve said for years, that the north is best to invest. Manchester continues to dominate the headlines with a 7% rise in house prices fuelled by continued investment, high tenant demand and healthy rental yields.
The opposite can be said of London where only a 0.4% increase has been reported, those who have yet to switch their buying habits for investment purposes should really consider their next move. It’s not a wise tactic to rely on capital growth alone and the North West in particular should be a firm focus for investors seeking a combination of high yields, capital growth and an ever-growing talent pool looking for high quality rental accommodation.
Manchester isn’t the only city that is flying; Liverpool and Leeds also continue to be hotspots and many investors are yet to take advantage of this. Prices in Liverpool are still 6% below their 2007 peak and with strong financials, we expect this vibrant city to mirror the success of Manchester.
Our message to investors is that if they haven’t already, they need to invest in the North West and now.”
