Price growth in UK remains modest but there are signs of recovery at upper end in London

Average house price growth in the UK remains modest but on the prime central London market there is upward movement in some areas after more than 18 months of declines, the latest analysis shows.

Prices increased by just 0.2% in April month on month and by 2.6% on an annual basis while prime central London prices edged down by 0.3% and are now 1.2% below April 2017 but for properties priced at between £5 million and £10 million, values are up 1.2% year on year.

The latest residential market update report from real estate firm Knight Frank also shows that average rents rose at an annual rate of 1.1% in April across Britain.

The report suggests that relatively low mortgage rates are helping offset some of the increased tax charges for many landlords because of the ongoing cuts to mortgage interest rate relief. In addition, an increase in ‘accidental landlords’ putting their homes up for rent rather than selling them has boosted supply, putting downward pressure on rents.

However, there are signs that this trend is already unwinding in the prime central London lettings market, with fewer new listings coming onto the market coupled with increased demand, which is likely to put upwards pressure on rents.

According to Gráinne Gilmore head of UK residential research at Knight Frank attention is already turning to the August meeting of the Bank of England’s base rate setters. There are expectations that, having held rates steady at 0.5% this month, they will move to raise rates to 0.75% at the end of the summer.

‘While a quarter point rise would lift the base rate to a nine year high, interest rates will still be at a record low on a long term basis. Swap rates, the money market rates that determine fixed-rate mortgage pricing, are already starting to rise on the expectation of an increase, but mortgage rates will remain modest in the short to medium term,’ she said.

The nature of mortgages on offer is also changing, she pointed out. There is an increasing range of mortgages that are designed to bridge the deposit gap for younger buyers by offering up to 95% and even 100% of the value of a new home.

The report also reveals that while urban pricing has outperformed more rural locations for several years, there are signs that this trend is now reversing. Indeed, urban house price values are now around 5% higher than the market peak in 2007 while average values for prime property in rural areas remain around 10% below peak values.

Prime Scottish property prices are also broadly flat, up 0.3% on the year, but there are signs that activity is picking up there too.