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Quarterly House Price Growth at 12-year High

We’ve asked one of our panel Mortgage Advisers, Hillcrest Property Solutions, for some insight into the UK property market so far this year:

The facts

  • Prices in Q1 2016 were 10.1% higher than in the same three months a year earlier, according to the latest Halifax house price index.
  • This was higher than the 9.7% rise recorded in both January and February and above the average annual rate which has remained within the 8%-10% range for nearly the whole period since the start of 2015.
  • House prices in Q1 2016 were 2.9% higher than in Q4 2015.
  • House prices rose by 2.6% between February and March, more than offsetting February’s 1.5% fall.

However Halifax predicts that uncertainty surrounding Brexit and continuing supply issues could have an impact on the market and home sales over the next few months which is good news for prospective first time buyers which could mean more properties available for purchase, more choice could lead to competitive house pricing.

Why is it happening?

City level house price inflation reached 4.2% in Q1 - the highest rate of quarterly growth for 12 years as demand was boosted by demand ahead of changes to stamp duty.

The Hometrack data reveals that tougher lending criteria for buy to let investors and changes to tax relief on mortgage interest payments have pushed investors to search for higher yielding property meaning more investment in lower value cities, with lower buying costs, and further support for continued house price growth.

Year on year house price growth across UK Cities reached 10.8% outstripping the 8.7% reported across the rest of the UK. The highest increase in the last quarter was recorded in Liverpool as prices rose off a low base and closed the gap to other major cities such as Manchester and Leeds where house price growth is running at over 7% per annum - the highest year on year growth since 2007.

Where does London fit in?

There has been a pickup in housing market activity in recent months, with the number of housing transactions and mortgage approvals rising strongly. This is likely to have been driven, at least in part, by upcoming changes to stamp duty on second homes, where buyers have brought forward purchases in order to avoid the additional tax liabilities.

The pace of house price growth may moderate again once the stamp duty changes take effect in April. However, it is possible that the recent pattern of strong employment growth, rising real earnings, low borrowing costs and constrained supply will keep the demand/supply balance tilted in favour of sellers and maintain pressure on price growth in the quarters ahead.

Additionally, for only the fourth time in five years, London did not record the strongest rate of price growth, with the Outer Metropolitan region occupying the top spot in Q1.

However London still recorded the second fastest rate of growth, with prices reaching a new all-time high of 52% above pre-crisis levels (compared with 9% for overall UK house prices).