All regions saw annual price gains in the second quarter of the year but the south of England, and London in particular continues to outperform other parts of the country, the data also shows.
It means that the average price for a home is now £188,903 and prices have now increased for 14 months in a row. In London prices were up by almost 26% in the second quarter of the year compared to the same period in 2013 and the price of a typical property in the city reached £400,000 for the first time.
Scotland was the weakest performing region with prices up 5.4% compared to the second quarter of 2013 while Northern Ireland is the least expensive region. The average price in Scotland reached £141,872 and £117,140 in Northern Ireland.
After London the South East saw the biggest quarterly change with prices up by 4.1% to an average of £230,409, followed by the South West with an increase of 2.6% to £207,420 and then East Anglia with growth of 2.5% taking the typical home price to £188,960.
The North saw a 2.3% quarterly increase to an average of £125,125, the West Midlands 1.9% to an average of £160,383, Wales 1.8% to £145,812, the East Midlands 1.7% to £154,145, the North West 1.3% to £144,851, and Yorkshire and Humberside 0.8% to £142,661.
On an annual basis prices in London have increased by 25.8%, in the South East by 14%, in the South West by 9.8%, in East Anglia 9.5%, in Wales 9.3%, in Northern Ireland by 8.4%, in the East Midlands by 8.3%, the West Midlands 8.2%, the North 8.1%, the North West 7.1%, Yorkshire and Humberside 7% and Scotland 5.4%.
Southern Scotland, which includes Ayrshire and the Borders, was the best performing area, with prices up 14% on the previous year. Fife was the weakest performing area, recording a 3% year on year increase.
In Wales, the west of the southern half of the country, which includes The Vale of Glamorgan, Bridgend and Swansea, was the best performing area, with prices up 12% year on year. North Wales was again the weakest performing area, with more modest growth of 5% over the same period.
In Northern Ireland prices remain around 50% below their 2007 peak. Belfast remains the most expensive area, and was also the strongest performer over the last 12 months, recording a 14% increase. Prices in the South of England were up 17.4% year on year, whilst in the North they rose by 7.7%. As a result, prices in all of the southern regions are now above their 2007 peak, whilst those in the north remain somewhat below.
But the annual pace of growth in London will probably start to slow in the quarters ahead, given the high base for comparison from the third quarter of 2013 onwards and given anecdotal evidence from surveyors and estate agents that activity may be starting to moderate, according to Robert Gardner, Nationwide chief economist.
He pointed out that the Bank of England’s Financial Policy Committee’s decisions to limit the proportion of lending at or above 4.5 times borrowers’ income to no more than 15% of new loans and to introduce a stress test to ensure that borrowers can afford a 3% increase in Bank Rate are unlikely to have a significant impact on housing transactions or the pace of price growth in the near term.
‘Most major lenders are already using a stress rate in their affordability calculation that is broadly consistent with the new stress test. Similarly, the proportion of house purchase loans at or above 4.5 times borrowers’ income is currently some way below the 15% cap,’ said Gardner.
‘However, these policy measures, along with previous actions, such as the introduction of Mortgage Market Review measures, should help to limit the risk of house prices becoming detached from earnings without de-railing the recovery in the wider housing market,’ he explained.
‘This is important, since lending activity has slowed markedly in recent months, with mortgage approvals in May around 19% below January’s high. The slowdown may partly be the result of the introduction of MMR measures, which may take a few months to bed down. However, the underlying pace of demand remains unclear, and transaction levels remain some way below historic averages,’ he added.
He also pointed out that rising longer term interest rates may also dampen buyer demand. ‘Mounting expectations that interest rates may rise earlier than previously anticipated may also act to dampen housing market activity in the months ahead. As investors have become more confident that the Bank Rate will start to rise gradually from late 2014 or early 2015, so longer term interest rates have started to increase. If this is sustained, it is likely to feed through to mortgage rates, which would also help to prevent buyer demand rising too strongly,’ he said.
‘Nevertheless, it is important to note that the Financial Policy Committee does not have the tools to address the fundamental problem in the housing market which is the lack of supply. While there are encouraging signs that the pace of construction has picked up, the pace of house building is still well below the expected pace of household formation,’ he concluded.
According to Paul Smith, chief executive officer of haart, the UK’s largest independent estate agent, annual price rises of 26% in London is unsustainable but this is different from saying it is a bubble.
‘Bubbles burst and London house prices, while completely unaffordable to many, are not about to collapse. That said, the market is correcting as wages are no way keeping up with property rises in the capital. London is a micro economic country in its own right compared to the situation in the rest of the country where house prices, according to our own data, are jogging along at an average increase of 9%,’ he explained.
‘The Bank of England's monetary policy committee has already put its oar in by introducing stress tests to mortgages and this will have an effect on the market in time. The market will find its own level without any interference from government or policy makers. They should leave well alone,’ he pointed out.
‘But that's the point. The housing market is a market. If in a food market the price of tomatoes goes too high people stop buying tomatoes. It's the same in property and if prices grow out of reach of most people they will reach a ceiling and start to come off. The headlines will be about London but for the majority of the population buying a home is still attainable,’ he added.
Stuart Law, chief executive officer at Assetz, believes that buy to let investors will need to look further afield away from London for capital growth and sustained yields. But he too agrees that there is no looming bubble.
‘Property price recovery in now sustained across the UK with annual increases for all regions and the ripple effect is well underway. The sensible and measured tools announced in last week’s Financial Stability Report should keep lending sensible which is key to a healthy market and certainly not encouraging a bubble,’ said Law.
