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London house prices hitting peak at 14 times income

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Written by: Victoria Hartley
25/11/2016
The disparity between average earnings and house prices is reaching record levels in certain parts of the country, with the capital at close to peak levels of growth.

The latest Hometrack UK Cities Index reveals the lack of supply and strong demand for housing in London has pushed house prices up 86% since 2009 to a house price to earnings ratio (HPTER) of 14.2x in the capital – more than double the UK ratio of 6.5x.

However, that annual rate of growth has slowed to its lowest level for three years to 9% and is expected to slow further towards low single digit growth in the next six to 12 months as demand weakens in the face of record high unaffordability and the tax and buy-to-let mortgage lending criteria changes aimed at investors.

Cambridge and Oxford also have double digit price to income ratios which, in turn, are well ahead of the average over the last 12 years.

However, strong house price growth in Bristol in the last two years, which has the fastest growing house prices in the index, has pushed its ratio to 9.2x earnings.

Cities with below average HPTERs include Glasgow with 3.7x, Liverpool at 4.4x and Newcastle at 4.8x where house price growth is starting to pick up off a low base.

The overall average UK inflation figure is 8.4% as the upward momentum in house price growth holds firm in large regional cities post the outcome of the Brexit vote.

Richard Donnell, Insight Director at Hometrack, said: “In cities where affordability levels are stretched fewer households are able to participate in the market and this reduces levels of turnover and leads to lower levels of house price growth. This process is underway in London where the annual rate of growth is close to its lowest level for three years and where the top end of the market is already registering falling prices.

“The Autumn Statement focused on the longer term challenges of addressing housing supply. This will have limited impact on the current profile of housing affordability in the near term which will be dictated by market forces and households’ expectations for jobs and the cost of borrowing.”

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