Bristol and Manchester led UK city house price growth at end of 2016

Bristol and Manchester are leading the price growth among key cities in the UK recording rises of 9.6% and 8.9% year on year, the latest index data shows.

House price inflation in Manchester has hit a 12 year high with demand far exceeding supply and London has fallen to seventh place in terms of price growth, according to the data from the Hometrack index.

Overall average values increased by 2.2% in the fourth quarter of 2016, up from 0.3% in the previous quarter and while annual at 7.7% was down slightly compared to 2015, it is in line with the average rate over the last 18 months.

The report says that falling unemployment and rising earnings continue to stimulate demand in more affordable housing markets where buyers are using low mortgage rates to increase the cost of housing.

However, the headline rate of growth masks a clear shift in underlying growth at a city level. The impetus for growth is shifting from London to regional cities with more attractive affordability and headroom for further price inflation while it is predicted that growth in London will slow to 1% in 2017.

While Bristol ended the year leading the growth, the average price increase of 9.6% is down from the 11.6% recorded in 2015 and the Hometrack report suggest that affordability pressures are set to result in slower growth in 2017.

But in Manchester underlying market conditions remain strong and the supply of homes for sales is only just managing to keep pace with demand which is keeping the upward pressure on prices. It is forecast that Manchester could overtake Bristol in the first quarter of 2017 and other regional cities such as Birmingham will continue to see above average price inflation over 2017.

It is a different picture on London where average prices increased by 7.3% in 2016, the lowest annual rate of growth since July 2013. The report says that stretched affordability levels, with the price/earnings ratio at 14 time, points to a prolonged period of price re-adjustment in the London housing market over the coming years.

Other cities recording faster growth than London in 2016 included Oxford at 8.1%, Portsmouth at 8%, Southampton at 7.9% and Birmingham at 7.5%.

Aberdeen, where prices have been falling the most due to the fall in the price of oil, is seeing a recovery. House prices registered an above average increase of 2.9% over the final quarter of 2016, reducing the rate of annual price falls to 3.2%. The report suggests the Aberdeen market is not close to the bottom having recorded an 11% drop in average house prices since 2014.