House price growth may have peaked says leading housing analyst

Richard Donnell, one of Britain’s foremost housing market analysts, says there are signs that the underlying rate of growth in house prices may have peaked. 

Donnell, director of research at residential consultancy Hometrack, says while it is wrong to put too much weight on one month’s figures “there are signs that the pace of city level house price growth is likely to continue slowing.” 

He compiles a monthly city price index on behalf of Hometrack and says there has been a surge of demand since the election in May but weaker mortgage approvals and evidence from survey data suggests less frenetic demand in the final quarter of the year.

“Putting the relative performance of UK cities into wider perspective shows a wide variation in performance from city to city emphasising that there is no single UK housing market – house prices in Belfast prices still remain almost half the level seen in 2007 while those in London are 43 per cent higher” he says. 

“The variation in growth reflects the strength of underlying demand for housing and the health of the local economy with the index throwing light on these localised trends at a granular level.”

The overall Hometrack city index shows that while house price inflation is running at 8.4 per cent per annum now compared to only 6.6 per cent in May, the year on year rate of house price growth masks more volatility in the underlying rate of growth. 

The three month rate of growth expressed on an annualised basis appears to have plateaued. This is in part due to seasonal factors, as well as mortgage approvals increasing over June and July and then falling by almost 20 per cent in August.

Thirteen of the 20 cities monitored by the Cities Index registered a slower rate of growth in Q3 of 2015 compared to Q2.

Urban house price growth is still running ahead of earnings and the UK as a whole. Average house prices are below the levels recorded eight years ago in nine cities with Belfast still 46 per cent lower than in 2007 followed by Liverpool where prices are still 14 per cent lower over the same period.

The outlook for housing demand remains positive against the backdrop of lower mortgage rates and rising consumer confidence however the latest mortgage data raises questions over whether the rate of growth since the May 2015 election can be sustained. 

Demand is expected to moderate in the coming weeks with a modest slowdown in the pace of house price growth likely in the run up to the year end, says Donnell.