The 20 city index from Hometrack shows that overall prices have increased by 4.4% quarter on quarter and 11.2% year on year, taking the average price to £237,500.
Liverpool has seen the highest growth in the last quarter and Bristol has the fastest annual growth rate. Prices in Liverpool were up 5.4% quarter on quarter and 6.5% year on year while in Bristol they increased 4.2% quarter on quarter and 14.1% year on year.
London has also seen strong year on year growth with an annual rise of 13.8% with quarter on quarter growth of 3.7%. Cambridge and Southampton also recorded large annual rises at 13.4% and 10.3% respectively.
Quarter on quarter the prices growth has been led by Edinburgh, Belfast and Aberdeen with a rise of 19%, 16% and 12% respectively while Aberdeen, which has been affected by the fall in oil prices is the only city in the index to have seen prices fall, down 4% quarter on quarter and 9.6% year on year.
But there is likely to be some affect from the referendum result that the UK should leave the European Union and the Hometrack index report says that it will impact turnover far more than house prices in near term although it predicts a rapid deceleration of house price growth across all cities in the second half of 2016.
‘The city level impact is hard to gauge but we expect the immediate impact to be felt in London where affordability levels are stretched and the market was already facing headwinds,’ it explained.
Overall, the report says that price inflation continued to increase in May, building on a strong first quarter and the surge of investor demand ahead of the stamp duty change for additional homes that came into force in April. Year on year growth is running at 11.2% compared to 6.2% twelve months ago.
‘The immediate and short term impact of the EU referendum result will be widespread uncertainty amongst buyers and sellers across the housing market. This is against a backdrop of already subdued turnover. While sales volumes have recovered from their 2009 lows, sales as a percentage of stock remain low by historic standards at around 5%, or a move every 20 years,’ the index report points out.
However, Hometrack does not expect house price falls as the greatest impact will be on market activity. ‘House price falls would require forced sellers, driven by higher mortgage rates and/or rising unemployment. While short term turmoil in financial markets will impact market sentiment, it is too early to say how the vote to leave will impact the real economy,’ the report explains.
It adds that tighter lending criteria implemented in recent years will help to mitigate the impact on the more recent entrants to the market and levels of new housing are likely to be scaled back helping to tighten supply and support prices.
‘Builders had already been slowing starts ahead of the vote and on concerns over the Starter Homes initiative. This cautionary approach is unlikely to change until the outlook for demand improves,’ it continues.
The report also says that the impact of the referendum result on the outlook for individual UK cities is hard to gauge as different cities are at different points in the housing. Large regional cities outside southern England are still in the early to middle stages of recovery compared to the high growth cities of southern England.
The localised impacts on demand for housing are likely to be driven by the outlook for the local economy and jobs, as seen in Aberdeen over the last year with prices down 10% on a weaker oil price.
Hometrack believes that the vote result will be most keenly felt in the London housing market which is already facing headwinds. House price growth in the capital varies between double digit growth in lower value areas and weaker, low single digit growth in central London areas.
‘Modest single digit price falls now appear likely in higher value markets as prices adjust in the face of lower sales activity and weaker investor demand. These markets have seen some of the highest growth in the last five years of up to 90% so a modest correction can be accommodated,’ the report says.
‘Even a sharp, prolonged fall in the Sterling is unlikely to attract overseas buyers in the near term. Across the whole London market, where house price growth is running at 13%, we expect the rate of growth to slow rapidly in the short term on uncertainty and affordability factors,’ it adds.
It also points out that the fundamentals of the housing market remain unchanged with record low mortgage rates and a wide imbalance between supply and demand. ‘The UK doesn’t have a problem with housing demand, the more important question is how many buyers and sellers feel confident to participate in the market in the near term,’ it says.
‘The sooner a clear picture emerges over the likely impact on the economy and the outlook for jobs and mortgage rates the sooner transaction volumes should stabilise and more buyers return to the market. Sentiment can turn fast and many businesses will hope the uncertainty does not linger and households start to put the result behind them and return towards business as usual,’ it concludes.
