With demand high, the shortage of supply has been particularly felt in the latter stages of the year and this is reflected in a 5% drop in sales, the data from the Hometrack UK cities house price index also shows.
London has seen the highest growth with prices up 13.3%, following on from 14.7% in 2014 and the average price of a home in the capital city has leaped by £52,900 year on year.
The weakest rate of growth was in Aberdeen where average house prices fell by 2% compared to a 12% rise in 2014, the data also shows.
The city with the strongest turnaround over the last 12 months has been Glasgow where growth has jumped from 1.8% a year ago to 8% today as prices recover off a low base in one of the most affordable cities covered by the index.
The index report suggests that scarcity and low turnover of stock will remain features of market supporting price growth but at expense of greater risk of localised price volatility, especially in cities with stretched affordability.
Richard Donnell, director of research at Hometrack, pointed out that moving amongst existing mortgage home owners accounted for the lowest share of housing sales in a decade at 33% compared to 50% in 2007. ‘This group are a vital source of new supply alongside new homes which account for 10% of sales a year. Strong demand from investors, most of whom are not sellers, has also exacerbated the erosion of available supply,’ he said.
He believes that the real engine for house price growth in 2016 looks set to come from regional cities which have recorded much lower levels of house price growth in the last few years and affordability levels are far less stretched.
The index also shows that house price to earnings ratios are well ahead of the long run average in London, Oxford and Cambridge yet across all other cities affordability on this measure is in line with the average over the last 12 years. Across the 20 cities covered by the index the average income to afford a home with an average 76% mortgage at a 3.5 times income mortgage is £49,700, up from £45,200 a year ago.
Donnell also pointed out that while the average mortgage rate is at an all-time low of 2.6% the reality is that existing mortgaged home owners outside the south east seem reluctant to take on debt to bid up the cost of housing. ‘Debt servicing costs continue to fall with the average mortgage rate on outstanding mortgage debt down to just 3.1%. UK households have seen interest payments fall by a further £1.1 billion over 2015,’ he said.
He also explained that recent policy interventions are set to have a mixed impact on the property market and investor demand is set to weaken over the course of 2016 as a result of stamp duty and tax relief changes announced earlier in the year.
‘The tax relief changes are likely to result in some modest disinvestment as investors deleverage their portfolio. Despite these changes, private investors will remain an important feature of the housing market but scale growth in investor demand will slow in 2016,’ said Donnell.
‘Questions over the sustainability of house price growth are being raised as house prices accelerate on growing scarcity and lower sales volumes, especially in the high growth markets such as London. The greatest focus is on the influence of investor buyers, who we estimate account for one in every five buyers nationally. This group don’t need to buy homes and could react differently to home owners in the face of changing market or economic conditions,’ he explained.
‘Assuming the first interest rate rise is in the second half of 2016 then we expect 7% growth in city level house prices over 2016 with housing transactions broadly flat. This is based on a slowdown in growth across London as affordability pressures and lower investor demand ease the upward pressure on house prices. Earlier and faster rate rises than those assumed by the market would reduce the scale of house price growth as they would further impact investor demand and mortgage affordability,’ he added.
