City house price growth plateaus in June as sales and new supply dynamics start to shift post Brexit

– Latest Hometrack UK Cities House Price Index saw annual growth stall at 10.2%, with large regional cities registering stronger price appreciation in the last quarter
– Further analysis shows sales volumes in regional cities appears to have held up over the EU referendum period
– In contrast, the London market has seen a widening gap between growing new supply and lower sales pointing to slower house price growth in the months ahead
 
The latest Hometrack UK Cities House Price Index reveals that annual house price inflation plateaued at 10.2% in June, the same level as May 2016, but still ahead of 6.9% growth seen in June 2015.
 
Bristol remains the fastest growing city in the UK with a year on year growth rate of 14.7%, but year-on-year house price inflation in London and in other cities in the south of England, such as Cambridge, Southampton and Bournemouth started to slow between May and June 2016 (see figure 1). Conversely, large cities in northern parts of the UK such as Glasgow, Manchester, Liverpool and Leeds have registered strong growth in the last quarter on the back of more affordable prices, lower interest rates, improving local economies and higher yields making purchases attractive to investors.
 
In the wake of the vote to leave the EU attention has turned to the impact on the economy and housing market. Time lags means official data is slow to pick up changes and housing is notoriously slow for changes of direction to emerge.
 
Hometrack analysis of recent market activity up to the middle of July shows changes in the balance of supply and sales, providing an early insight into trends in turnover and whether supply is starting to expand which could reduce price growth.
 
Looking at the three months to mid-July the analysis shows that recent sales momentum in regional cities, and higher house price growth, appears to have held up over the referendum period. In contrast, the headwinds facing the London market ahead of the vote have resulted in rising supply and relatively fewer sales pointing to slower house price growth in the months ahead.
 
Figure 2 shows the relative change in new listings and sales for selected cities – it reveals that new listings have grown faster in the last 3 months than the average increase in supply seen over the last 12 months. For all cities in England and Wales, excluding London, new listings have grown 10% faster than the 12 month average, this rises to over 15% in London.
 
In contrast, we have seen an 8% relative fall in sales in London i.e. 8% fewer homes sold per month in the last 3 months compared to the 12 month average. The relative change in Bristol is 0%, while in larger regional cities, where house price growth has been picking up momentum, the relative change is sales is positive at up to 7% in Manchester.
 
Richard Donnell, Insight Director at Hometrack says: “The headwinds that were facing the London market in the lead up to the EU referendum have intensified on the back of the vote to leave and are resulting in slower sales rates. It is still early days, and seasonal factors also need to be considered but the growth in new listings and slower sales points to slower price growth in the months ahead. This growth in supply reflects a mix of new homes filtering through from London’s expanded development pipeline, investors looking to take capital gains, or selling to de-leverage their investments following the reduction in tax relief on mortgage payments for buy-to let investors.
 
“In contrast, in many large regional cities, sales appear to have held up thanks to a combination of much better housing affordability, improving economic growth and record low mortgage rates helping to stimulate demand.”
 
Donnell concludes: “The reality is that it is still very early days to assess the true impact of the Brexit vote on the housing market. Our view remains that sales volumes are likely to slow and price growth will moderate over the second half of the year. The severity of a slowdown will depend upon the response of consumers and businesses to the uncertainty created by the decision to leave the EU and the impact this has on the economy. The early market activity data confirms our view that London will bear the brunt of any slowdown.”
 

Figure 1 – Year on year growth by city over the last 12 months
Source: Hometrack UK Cities House Price Index
 

Figure 2. – relative change in new listings and sales over 3 months to last 12 months
Source: Hometrack analysis of property listings data
 
Figure 3. – Cities Index summary table – June 2016
 

 
Source: Hometrack