News: House prices to grow faster than inflation as north-south divide widens

Thu, 25 Feb 16

House prices in the UK are forecast to rise quicker than inflation and pay gains, as the country’s north-south divide widens.

A new poll of property professionals by Reuters found that prices are expected to rise 5 per cent this year, followed by 4 per cent growth in 2017 and 3.8 per cent in 2018.

This growth would put house price growth at a faster rate than consumer inflation and also pay gains, which would make it tougher for first-time buyers to get a foot on the housing ladder.

Indeed, wages are forecast to rise just 2.8 per cent in 2016 and 3.6 per cent in 2017.

"The house price to earnings ratio is nudging six times and is less than 1.0 times off its all-time peak from 2007. Many younger people have no choice but to rent," Tony Williams at Building Value told the news agency, as raising sums for a deposit remain the biggest hurdle to home-ownership, despite mortgage affordability.

London homes are rated as "expensive", adds Reuters, scoring a median of 9 on a scale of 1 to 10. Nationally, house prices were rated 7.

Indeed, the capital has long been several rungs above the rest of the UK on the house price scale and new research from Savills suggests that not only is the north-south gap still there, but it is widening.

New research shows that the north-south divide over house prices is not only continuing but is getting significantly worse.

In 2005, a typical Greater London home costs £289,939, according to Savills, the same amount as 1.25 homes in the south east and just over 2 in Yorkshire or Wales.

In 2015, a typical Greater London home costs £539,519, the equivalent of over 3 homes in northern England, Wales or Scotland.

"London’s housing market, particularly in the centre, was effectively over the recession by the end of 2009 and continued its recovery very quickly," Savills’ residential research director Lucian Cook told The Sunday Times. "Places like the north of England and much of Wales, by contrast, haven’t been able to do the same. They’ve less inward migration and so less demand, and they‘re still tackling some de-industrialisation."

According to research from Hometrack last year, the gap between house prices in London and other major regional cities is at its widest for 20 years.

Low interest rates are helping to underpin price growth, professionals told Reuters, with the Bank of England rate having to reach 2 per cent before impacting the property market. Indeed, one of the biggest risks is thought to be the potential of further evidence of global economic slowdown. Nonetheless, prices are still expected to climb regardless, with London again racing ahead with price growth of 5 per cent this year and next, before dipping slightly to 4.4 per cent in 2018.

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