18th December 2015
London house prices may have slowed this year but homes in the capital still notched up the fastest rate of growth in the 12 months to November.
The latest Hometrack report shows prices in London have increased 13.3%, of an average of £52,900, in the year to November.
Although this is slower than the previous year, where growth was recorded at 14.7%, it is above the 10.1% average growth seen across the UK.
The double-digit growth in the country has been fuelled by a ‘chronic’ shortage of homes for sale, particularly in the second half of 2015.
Moving among existing homeowners accounted for the lowest share of housing sales in a decade – just 33% compared to 50% in 2007. As this group are a source of new supply of homes, alongside new builds, this means there have been fewer homes on the market.
Hometrack said the ‘engine for house price growth in 2016’ would see regional cities make gains on London. There has been lower levels of house price growth in these areas and affordability is therefore less stretched.
In terms of affordability, house price to earnings ratios are ‘well ahead of the long run average in London, Oxford and Cambridge’ but in line in other cities.
Across the 20 cities covered by Hometrack’s report, the average income to afford a home with a 76% mortgage at a 3.5 times income mortgage is £49,700, up from £45,200 a year ago.
Even with mortgage rates at an all time low buyers are having to take on increasing amounts of debt to buy a home and homeowners outside of the south east are reluctant to take on increased debt.
Richard Donnell, director of research at Hometrack, said: ‘The scarity of homes for sale looks set to remain a feature of the market in 2016.
‘This will only ease once we see greater levels of output from homebuilders and renewed activity among the eight million mortgaged homeowners. Questions over the sustainability of house price growth are being raised as house prices accelerate on growing scarcity and lower sales volumes, especially in the high growth markets such as London.’
He said the greatest focus ‘is on the influence of investor buyers, who we estimate account for one in every five buyers nationally’.
‘This group don’t need to buy homes and could react differently to homeowners in the face of changing market or economic conditions,’ he said.
‘Assuming the first interest rate rise is in the second half of 2016 then we expect 7% growth in city level house prices over 2016 with housing transactions broadly flat. This is based on a slowdown in growth across London as affordability pressures and lower investor demand ease the upward pressure on house prices. Earlier and faster rate rises than those assumed by the market would reduce the scale of house price growth as they would further impact investor demand and mortgage affordability.’
* The income to buy an equity/deposit required assumes a 3.5x income mortgage at an average 76% loan to value – Source: CML