Gap between house prices in London and major UK cities widens

The gap between house prices in London and other major regional cities in the UK is at its widest for 20 years, according to the latest house price index.

Prices in London experienced 4.6% growth in the three months to August and a 10% increase in the last 12 months, according to the cities house price index from Hometrack

Overall city level house price inflation is running at 8.3% up from 6.6% in May. A similar expansion has been recorded in sales volumes which has translated into higher prices across UK cities, the report says.

The highest rate of growth is in Cambridge at 11.2% and lowest in Aberdeen where prices have fallen by 2% due to the weakness in the oil price affecting the demand for housing.

Compared to a year ago house price inflation has increased in five cities led by Edinburgh and Glasgow where growth is running at 9% and 5.3% respectively
 
‘City level house prices continue to increase as demand for housing grows in the face of constrained supply,’ said Richard Donnell, director of research at Hometrack.

‘A changing mix of buyers is compounding the scarcity of housing for sale with rising numbers of first time buyers and investors buying property while having nothing to sell. Only a recovery in the number of moves amongst existing home owners or an increase in new supply will ease the current housing scarcity which seems unlikely in the near term,’ he pointed out.

‘The gap between house prices in London and other major regional cities is at its widest level for 20 years. This highlights a seemingly over valued London market, on a price/earnings basis, and the prospect of further price growth to come in the large regional UK cities,’ explained Donnell.
 
‘London’s price earnings ratio is at an all-time high while there remains value in most other regional cities. The pricing differential to London could well assist city regions attract new investment as the cost of housing starts to influence decision making for both households and businesses,’ he added.