After remaining relatively flat for the past two years, there are tentative signs that UK house prices are starting to gain some momentum.
The price of a typical UK home edged up by 0.3 per cent in June, which helped to take the annual rate of house price growth to 1.9 per cent – the fastest pace since September 2010.
A number of factors are likely to be contributing to the recent acceleration.
Demand for homes has been supported by further modest gains in employment, as well as an improvement in the availability and a reduction in the cost of credit, partly as a result of policy measures such as the Funding for Lending Scheme. Signs of a modest improvement in wider economic conditions may also be playing a role in boosting buyer sentiment.
At the same time, there are few signs that the supply of housing is improving significantly.
Indeed, construction data point to a further decline in building activity in recent quarters from already depressed levels.
For example, in the first quarter of 2013, housing completions in England were down 8 per cent compared to the same period of 2012 and around 40 per cent below the average number of quarterly completions in 2007.
The gradual pick-up in house price growth at the national level masks significant regional variation. The strongest-performing regions are in the south of England, especially London. Indeed, house prices in the south of England were up 3 per cent year on year in the second quarter, more than twice the 1.4 per cent pace recorded across the UK as a whole in the three months to June.
Moreover, in London, prices were up by 5.2 per cent year on year, taking the price of a typical home in the capital to an all time high of £318,214 – almost twice the level prevailing in the rest of the UK when London is excluded. Indeed, the gap between house prices in London and the rest of the UK is the widest it’s ever been, both in cash and percentage terms.
This divergence in house price performance across the regions has been evident for some time, and, as a result, prices in the south of England are now closer to their pre-crisis level than most other parts of the UK.
In the UK as a whole, house prices are still around 9 per cent below their pre-crisis peak. By contrast, London house prices reached a new all time high, 5 per cent above their pre-crisis level.
Among the home nations, England has been outperforming for some time. House prices in England are currently 5 per cent lower than their 2007 peak while they are 13 per cent lower in Wales, 12 per cent Scotland and 53 per cent lower in Northern Ireland.