Southern cities leading house price growth in the UK, latest index data suggests

UK house prices have increased by an average of £11,500 over the12 months to May 2015 with seven cities in the South of England significantly outperforming this level, the latest index shows.

The average house in a city now costs £189,400 with London more than double this figure at £425,700, according to the data from residential property analyst Hometrack.

The data also shows that on a month on month basis prices increased by 0.8% in May which is 3.8% above the peak of the market in 2007.

Oxford has recorded the highest rise in the last 12 months with growth of £41,700, nearly quadruple the UK average of £11,500, followed by London at £38,900, Cambridge at £23,900, Bristol at £22,400, Southampton at £15,300, Bournemouth at £15,300 and Portsmouth at £15,000.

Hometrack said that these house prices gains are a result of robust demand underpinned by the strength of these cities’ local economies and all 20 cities covered by the index recorded annual price rises.
 
Those that saw the smallest rises were all in the north. In Liverpool prices increased by £4,200, Newcastle by £4,700 and Sheffield by £5,300 and these cities are still 14%, 8.5% and 3.8% respectively below their 2007. They are part of a group of nine cities in the north of England, Scotland and North Ireland that are recovering at a much slower pace due to weaker demand from house buyers.
 
All cities except Aberdeen with a fall of 0.4%, recorded month on month price rises and Hometrack said that this could be partly due to a post-election bounce. Bristol led the way with a 1.3% increase followed by Cambridge, Leicester, Liverpool and Belfast all at 1.2%.
 
‘House prices have picked up momentum post-election. An increasing proportion of households are feeling the benefits of the improving economy, which means that house price growth is set to continue in the coming months. The greatest risk is an earlier than expected increase in interest rates which would knock market sentiment,’ said Richard Donnell, director of research at Hometrack.

‘The strong demand side recovery seen in southern England has yet to spread to other cities revealing the diverse nature of the housing market. All cities are making gains at different rates of growth, but the cities with the biggest increases all have something in common  and that is strong local economies,’ he explained.
 
He predicted that affordability pressures will bite at some point in the high value, high growth markets. ‘The double digit price growth registered in cities such as London, Oxford and Cambridge is being sustained by a lack of supply and below average transaction volumes with a third of sales funded by cash or buy to let mortgages,’ he pointed out.

‘London has the highest price to earnings ratio, but it covers a wide range of sub-markets. Over the last three years, the impetus for house price growth has shifted from prime markets to the more affordable markets in outer London and the commuter belt,’ he added.