Northern cities continue to lead price growth in the UK

House price growth in British cities continues to be led by locations in the north with five recording annual rises of over 7%, the latest index shows.

Overall prices in key cities have increased by 5.2% in the 12 months to February 2017 but the reverse is happening in London with value up just 1% year on year and negative growth in 42% of the capital’s postcodes.

Edinburgh, Liverpool, Leicester, Birmingham and Manchester lead the growth with annual price rises of 8%, 7.8%, 7.7%, 7.7% and 7.1% respectively with Leeds not far behind at 6.9%, according to the latest index from Hometrack.

Overall price growth in the 20 cities covered by the index is still above a year ago when it was 4%. Half of the cities have higher growth than a year ago while London, Southampton and Bristol are seeing price growth slowing.

The headline rate of growth across London has slowed to just 1%, down from 4.3% a year ago, the lowest annual rate of growth since August 2011. Over the last three months average prices have increased by just 0.4%, well down on 5% growth recorded per quarter recorded in 2014.

‘We expect the number of markets with falling house prices to grow further in the coming months as buyers accept lower prices to achieve sales. The net result will be a negative rate of headline price growth for London by the middle of 2018,’ the index report says.

‘The latest results confirm our view that house prices in London are set to drift lower in the next two to three years. In contrast, house price growth remains robust in the largest regional cities where similar analysis on rising and falling markets reveals no evidence of localised price falls,’ it adds.

Aberdeen continues to be the worst performing city with annual price growth down by 7.7% and prices also fell in Cambridge, down by 1.5$ while in Oxford they grew marginally by 0.5%. In Southampton prices increases by just 2.8% and in Belfast by 3.2%.

However, Russell Quirk, chief executive officer of Emoov does not believe that London will see a price crash. He said that much higher prices and a greater degree of buyer uncertainty means that London remain one of poorer performers at present.

‘However, as we’ve seen over the years, the popularity of the London market is cyclical and while it may have fallen out of favour for the time being, this cool in price growth is unlikely to prevail as the year plays out and it is highly unlikely we will see a market crash of any shape or form,’ he pointed out.

‘London is still viewed by many as the pinnacle of home ownership in the UK and while the growing political tensions with Russia will do little to help London’s prime central market, vast pockets of the capital remain very popular among buyers,’ he added.

The rise of Northern cities should encourage landlords to increase their portfolios, according to Graham Davidson, managing director of buy to let specialist Sequre Property Investment. ‘Whilst many investors are turning their back on London and the south due to very poor rental yield returns and little or even negative capital growth, the north has been flourishing,’ he said.

‘Deals in northern cities are far stronger. For example, an investor can pick up a two bedroom apartment in Manchester for around £98,000 generating a 22.3% return on cash invested, financials you simply wouldn’t find in the south. Those who were quick to catch on to northern buy to let four years ago could now be sitting on returns in excess of 230%, demonstrating the strength of the market in the North West,’ he explained.

But it is not so good for first time buyers. ‘The issue we have is supply and demand. The lack of supply is pushing up demand and therefore increasing prices, not necessarily bad news for landlords seeking capital growth but this will be a blow to aspiring first time buyers struggling to get onto the property ladder,’ said Ged McPartlin, director at Ascend Properties.

‘Competition for both sales and rental property is high and this is contributing to the very interesting market we’re finding ourselves in. With the continued investment into both of these two cities likely to drive population figures even further, Manchester and Liverpool will be highly desired for the foreseeable future,’ he added.