Regional city house prices to see further 25% rise: Hometrack

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%).

As house prices in regional cities continue to significantly outpace London, the difference in value of homes in these cities is beginning to narrow.

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%.”