Cities that only started to recover two years ago off a low base, such as Liverpool, Sheffield and Glasgow will now drive future house price growth where housing affordability is greatest
• UK house prices rose by 7.9% in the 12 months to January 2015, with prices up just 1.1%in the last quarter as the slowdown continues
• Year-on-year city level house price inflation ranges from 4.1% in Glasgow, where house prices average four times average earnings, to 8.6% in Oxford and London where house prices average 12 times average earnings
• The high growth cities of 2014 continue to see the rate of growth slow with London down to 13.6%, Bristol at 10.8%, Oxford at 8.6% and Cambridge at 5.3%
• Six out of the 20 cities hit their post-downturn lows just two years ago, but are now up by an average of 9% and will drive future growth
The impetus behind continuing UK house price growth is shifting towards cities like Liverpool, Sheffield and Glasgow, which bottomed out only two years ago, away from the cities that started to recover in 2009 but have since slowed due to pressures on affordability.
Hometrack has revealed in its latest UK Cities House Price Index that over the last six years, London and Oxford have experienced house price growth of 55.2% and 42.1% respectively since the trough. However affordability pressures will limit growth in the medium term with both cities registering over 12 times the price to earnings ratios, almost twice the UK average of 6.3 times.
By contrast in cities that only started their recovery two years ago such as Edinburgh (10.7%), Leeds (10.1%), Newcastle (8%) and Glasgow (6.3%), house prices are averaging between three and six times the average earnings.
There are 14 UK cities in total that have been recording house price growth since 2009, but the length of the recovery does not provide a guide to the level of house price growth. While London has seen the average house value increase by 55% or £144,000, the rebound in house prices in Manchester and Birmingham have been just over 10% or £12,500 over the same period.
The six cities that have been recovering for the last two-three years have recorded an average increase of just 9% or £11,000 led by Belfast and Edinburgh. The weakest growth has been seen in Glasgow with average prices up 6.3% or £6,300 since July 2012.
Richard Donnell, Director of Research at residential analysts Hometrack, said:
"A focus on average UK house price movements masks critical trends at a city and sub-regional level. This is important for both businesses operating in the housing market and policy makers trying to address the challenges of growing housing supply.
"House price growth within cities reflects the strength of their local economies and the demand for housing. While Manchester and Birmingham saw prices bottom out in 2009, growth has been more subdued than in other cities where employment growth has been stronger and the influence of the London economy has been greater.
"Elsewhere house prices continue to rise off a low base as pent-up demand returns to the market supported by record low mortgage rates, an improving economic outlook and rising earnings. Existing homeowners remain are reluctant to put their homes on the market, creating scarcity and keeping an upward pressure on prices.
"The outlook for 2015 is a balance between the scale of the affordability driven slowdown in the high value, high growth markets and the continued recovery in lower value markets."
Profile of house price recovery since recent lows
House Price Growth versus Years in Recovery
Hometrack UK City Index snapshot – January 2015
The Hometrack UK Cities House Price Index is Not Seasonally Adjusted
NOTE – The definition of London 'City' is larger than the London Government Region. The 'City definition extends further out into London's travel to work area capturing the commuter areas outside the 33 London Boroughs. The London 'City' area covers 44 local authorities and better represents the housing markets that are influenced by the London economy.