House price growth stays in double digits in the UK
News by Hannah Nemeth
House growth up
House prices in the UK rose by 11.7% in the year to August 2014 - unchanged from the year to July 2014 - according to figures from the Office for National Statistics (ONS).
While house prices were strong across the UK, prices in London continued to show the highest growth. London saw an annual increase of 19.6%, compared with 12.2% in England, 4.7% in Wales, 6.7% in Scotland and 9.6% in Northern Ireland.
The South East and the East also had above-average annual house price rises, at 12.3% and 11.6% respectively.
Once you take London and the South East out of the equation, UK house prices increased by 7.8% in the 12 months to August 2014; while average house prices in the UK rose by 0.6% between July and August 2014.
First-time buyers faced the largest price hikes – it cost them 12.9% more to get on the property ladder than in August 2013. This compares with an 11.2% rise for owner-occupiers.
However, according to estate agent Knight Frank's forecast for the residential property market in the UK, house price hikes will slow down in the run-up to the General Election. It predicts that average UK house prices will rise by just 3.5% next year.
Knight Frank views this as a temporary slowdown and believes that the cumulative growth in UK house prices will total 18.2% in the five years to the end of 2019. It predicts that while prices in prime central London will remain unchanged in 2015, cumulative growth in the capital will total 22.1% by the end of 2019.
It also predicts that rents in the UK and in prime central London will rise by 2.2% and 3.5% respectively in 2015.
Knight Frank cites interest rate rises and the risk of a renewed economic slowdown as the biggest risks to the UK housing market. It says that the 'ultra-low' base rate in recent years has acted as an accelerant on demand, especially among home-movers and buyers who have saved up for a deposit and can lock into low-rate fixed mortgages.
Commenting on the ONS House Price Index, Richard Sexton, director of e.surv chartered surveyors, said: "Double digit house price growth is creating a smokescreen masking the subtleties of the housing market recovery.
"The extraordinary market in London is a large part of that illusion, as colossal growth skews the overall figures for the country. In fact, moving away from the capital, plenty of pockets of the UK are still shaking off the shackles of the recession and only now getting into first gear. Price growth in these regions is much more moderate and sustainable.
"The price of first-time buyer properties has risen rapidly as the shortening supply of cheaper first homes becomes ever more depleted. Luckily, a varied crop of high loan-to-value lending options has sprung up in the past 12 months to meet that demand. It has allowed worthy borrowers who have struggled to save a large deposit access to finance regardless, propping up demand among first-time buyers and preventing them from being the casualty of the property market recovery."
Liam Bailey, head of residential research at Knight Frank, commented: "We stated last year that positive price growth was set to become a national story, with the ripple from London a well-established trend. We noted at the time that there was a flip side to this development. Strengthening price growth in the short term would act to limit longer-term growth.
"We remain of the view that pricing in the UK is high in historic terms and affordability constraints will limit future price growth, especially as we move into a more normal period for price growth. However, with the UK economic recovery continuing to gain traction and with positive real wage growth increasingly likely over the next five years, we believe there is scope for sustained price and rental growth beyond 2015."