City house price growth rebounds to 6.1%

City house price growth increased to 6.1% in October, the highest rate of growth since September 2016, according to the latest Hometrack data.

Related topics:  Finance News
Rozi Jones
28th November 2017
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"In regional cities outside of the south east house price growth remains robust as affordability is still attractive and unemployment continues to fall."

Manchester (7.9%) and Birmingham (7.3%) are registering the fastest rate of growth, while London stabilises at 3%.

Unlike many regional cities, London is expected to underperform over the next two to three years.

Affordability pressures have led to a 15% drop in the number of mortgaged first time buyers over the last three years. Hometrack says the changes to stamp duty announced in the Budget are unlikely to significantly impact this trend as the greatest challenge for first-time buyers is the income required to pass mortgage affordability stress tests.

The gap between average earnings and house prices has reached an all-time high in London. The price to earnings ratio in the capital is now 14.5x average earnings - 42% higher than the average for the last 15 years.

Behind London, Cambridge (14.3), Oxford (12.6) and Bournemouth (10.1) have also recorded double digit price to earnings ratios, while strong house price inflation in Bristol has pushed its ratio to 9.7x average earnings.

In contrast there are three cities - Glasgow, Liverpool and Newcastle - where the current house price to earnings ratio is lower than the 15 year average.

Richard Donnell, Research and Insight Director at Hometrack, said: “Unaffordability in London has reached a record high despite a material slowdown in the rate of house price growth over the last year. Lower housing turnover in the capital has led to a tightening of supply in recent months which has stabilised house price growth. Even so, the gap between average earnings and house prices in the capital has never been wider.

“In regional cities outside of the south east house price growth remains robust as affordability is still attractive and unemployment continues to fall. This can be seen in cities such as Manchester and Birmingham where the current house price to earnings ratio is only slightly higher than it has been on average over the last 15 years. As long as mortgage rates remain relatively low and the economy continues to improve, there is a strong feasibility that house prices will rise steadily in regional cities over the next two to three years.”

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