The Sunday Times
Saturday February 16, 2019

Stretched affordability is putting a brake on house price gains, with property values falling in London.

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  • House price growth in the UK’s major cities fell to a six-year low in November as affordability became increasingly stretched.

    London property values have dropped by 0.1% during the past 12 months, with growth in the capital set to end the year in negative territory for only the second time in 23 years.

    It was not the only region to experience a faltering housing market, with property values also lower year-on-year in Aberdeen and Cambridge.

    Only four cities registered higher annual house price growth in November than they had a year earlier, according to Hometrack.

    Overall, property values in the UK’s 20 largest cities have risen by an average of 2.6% in the past 12 months, the slowest rate since 2012.

    Why is this happening?

    The headline figure for house price growth is being dragged down by falls in London and a sustained slowdown across cities in southern England.

    Growth remains stronger in northern cities, with Edinburgh and Manchester recording annual price rises of 6.6%, followed by Birmingham at 6.3%.

    In southern cities, much of the slowdown is being driven by stretched affordability following years of property price rises outstripping earnings growth. 

    Who does it affect?

    Housing affordability is becoming increasingly stretched across the UK’s major cities, making it significantly harder for people to buy a home or trade up the housing ladder.

    Despite recent falls, the house price to earnings ratio in the capital has dropped only slightly from it 2016 peak 14 to 13.3.

    The cities in the south of England that have seen the most marketed slowdown, namely Bournemouth, Portsmouth and Bristol, now have the highest house price to earnings ratios outside of London, Oxford and Cambridge. 

    What’s the background?

    Going forward, Hometrack expects prices in the UK’s major cities to rise by 2% in 2019, as above average growth in the UK’s regional cities helps to offset falls in London.

    It is predicting a further price slide in the capital, with the typical cost of a home dropping by 2% during the year, reducing the house price to earnings ratio to 12.8, a level last recorded in mid-2015.

    But cities where prices remain more affordable, such as Liverpool and Glasgow, can expect property values to increase by 5%.

    Donnell says: “The fundamentals of housing affordability will shape the prospects for city house prices in 2019.

    “This is already the case with flat to falling prices in the most unaffordable cities and above average growth in the more affordable areas.” 

    Top 3 takeaways

    • House price growth in the UK’s major cities slumped to a six-year low in November

    • Property values in London have fallen by 0.1% during the past 12 months

    • Hometrack expects prices in the UK’s major cities to rise by 2% in 2019 

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