House prices in key cities in the UK increased by 3.8% in the three months to April 2016 and were up 10.4% year on year, according to the latest index.
But there is considerable variation with Cambridge leading the annual growth with prices up 15.8% whereas in Aberdeen prices fell by 6.1% year on year, the data from the Hometrack cities index shows.
The report says that this time last year growth was slowing in the run up to the UK’s general election and looking ahead growth could slow again in the run up to June’s referendum on the future of the UK in the European Union.
It also points out that a surge in sales ahead of the new 3% stamp duty surcharge for additional homes resulted in most cities registering a spike in the monthly rate of house price growth in March with slower growth recorded in April.
Aberdeen remains the city bucking the national trend with prices falling by 6.1% in the last year where the lower oil price continues to impact the economy and demand for housing.
Across the remaining cities, the annual growth rate is higher than 12 months ago in 15 out of the 20 cities covered by the index, led by Cambridge with growth of 15.8%, then London up 14.4% and Bristol up 13.8%.
Portsmouth and Southampton both saw prices rise by 9% year on year while in Bournemouth prices were up 8.6%, in Birmingham 8.3%, in Manchester 7.8%, in Leicester 7.4%, in Oxford 7.1%, Leeds 6.7%, in Cardiff 6.3%, in Nottingham 5.9%, in Liverpool 5.5%, in Sheffield 4.7%, in Belfast 4.1%, in Edinburgh 4%, in Glasgow 3.5%, and in Newcastle 2.5%. Aberdeen was the only city to see prices fall with a decline of 6.1%.
The report says that the implication of the referendum result for businesses operating in housing is the key unknown. ‘The economic impact of Brexit and consequences for interest rates, investment and incomes has direct implications for housing. The consensus appears to be a short economic shock accompanied by a period of uncertainty for consumers and business,’ it explains.
It has an analysis of city level house price growth and transactions over the last 20 years which shows that external shocks tend to have a greater impact on market volumes than house prices, especially where there is no accompanying economic downturn.
From 1996 to 2007 house prices posted consistent positive year on year growth but this was not the case for sales volumes which were influenced by a mix of external shocks to sentiment and changing domestic factors such as short periods of rising interest rates.
In the decade before 2007, sales volumes fell on four occasions in London by as much as 15% highlighting how London is more prone to the impact of external factors from the crisis in emerging economies and collapse of the Long Term Capital Management hedge fund in 1998 to the bursting of the dot com bubble in 2000 and the Iraq war in 2003.
The 15% drop in sales seen in 2005 was registered across the country, driven largely by domestic factors and rising interest rates in 2003/2004. In contrast, the impact of the 2011/2012 Eurozone crisis on turnover was more muted as the market was just recovering.
The report suggests that part of the reason for London experiencing greater volatility in sales over this period to 2007 was the fact that London house prices had more than doubled in the seven years before 2000. In contrast, most other parts of the country had registered much lower rates of growth.
‘A lack of relative value in London post 2000 increased the sensitivity of the market to external factors, something which is very pertinent today when we consider the impact of the referendum result,’ the report adds.
The report says that the implications of this analysis is that a vote to leave the EU on 23 June would most likely result in a 5% to 10% fall in housing turnover with London bearing the brunt of the slowdown.
‘The rate of national house price growth would undoubtedly slow, but the scale of this will depend upon the economic impact and whether mortgage rates increase. The greater the direct impact on the economy then the greater the downside for turnover and house prices,’ it points out.
‘If the economy keeps growing, albeit more slowly, negative price growth is unlikely. The London market faces greater headwinds irrespective of the referendum vote. Turnover fell 7% last year on the back of affordability constraints and weaker overseas demand. Tax changes for investors will reduce demand and we expect price growth to slow in the near future even if the pound were to weaken and improve the relative value of central London property,’ it adds.
SOURCE: PropertyWire.com
