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London lags behind UK house price growth

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·3-min read
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London lags behind UK house price growth. Photo: Getty Images
Affordability levels have improved by 10% in London since 2016. Photo: Getty

The UK housing market is on track to record its strongest year since 2007 both in terms of sales volumes and house price inflation, but London is lagging behind.

The capital registered the lowest house price inflation, up 2.3%, and is the only region in the UK where growth is below the five-year average, as per Zoopla’s latest house price index.

By contrast, Wales is continuing to top the house price growth table, with current inflation tracking over 10%.

Chart: Zoopla
Infographic: Zoopla

Affordability levels have improved by 10% in London since 2016, but affordability remains well above the long run average. 

This will continue to limit potential price rises in the highest value areas of London and southern England in 2022 and beyond, Zoopla said.

Looking forward, house price growth will be the weakest in London at 2% over the next year. In contrast it will be the greatest in North West and East Midlands (4%).

Watch: How much money do I need to buy a house?

How prices are rising across UK

An imbalance of supply and demand is continuing to support UK house price growth, which is currently running at 6.6%, with all countries and regions of the UK registering growth rates well ahead of the five-year annual average (with the exception of London).

The pace of this year’s market has proved "almost unprecedented", the report said, thanks to a national re-evaluation of housing, low mortgage rates, and the additional boost from the stamp duty holiday, which ended last month.

Zoopla forecasts that 2021 will be a record year for sales with £473bn of new sales agreed, the highest level of sales, at 1.5 million, since 2007.

“2021 is set to be a record year for the housing market with the most moves by homeowners since 2007 and nearly £500bn of home sales," said Richard Donnell, executive director at Zoopla. 

He said the impact of the pandemic on the housing market has further to run but at a less frenetic pace. 

"We expect the momentum in the market to outweigh some emerging headwinds from higher living costs and the risk of higher mortgage rates."

Read more: Value of UK homes soar by £1.6tn in five years

The latest data shows a turning point in the rate of house price growth, which Zoopla expects to slow quickly, with average UK house prices up 3% by the end of 2022. 

High levels of demand, which have characterised the market since May last year, have been running at 30% above the five year average since the summer, defying any expectation that they would fall sharply following the end of the stamp duty holiday earlier this year, Zoopla said.

Looking ahead to the end of the year, demand is expected to surpass levels recorded at the end of 2020, and is on track to continue into 2022. Above average house price growth is expected to continue in the most affordable markets, where current growth is highest.

Headwinds for the next year will come from higher living costs and increased mortgage rates, which will impact buying power

As the UK emerges from the impact of the pandemic, housing transactions are expected to decline by 20% from their high of 1.5 million in 2021, to 1.2 million in 2022, in line with the long run average, but still relatively high compared to the last decade.

Watch: UK property - what is shared ownership?

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