James Allen, head of alternative investments at Walker Crips, comments:
UK house price growth for June 2018 has fallen to within 0.5% of today’s UK inflation figure at 3% and 2.5% respectively according to data from the Office of National Statistics. This is significant as house prices appear to be converging around inflation, despite regional variations. Convergence towards inflation is even more marked in England, where annual house price growth is 2.7%.
The June 2016 data showed a huge regional variation for house price growth with the East of England rising 14.3%, London prices increasing by 12.6% and the North East managing just 1.5%. This broad range narrowed significantly by June 2017 – the East of England rose 7.2% and the North East was up 2.5%. London at this point was rising by just 2.9%, with the strong increases in boroughs such as Lewisham and Hackney counteracted by price falls in Prime London.
Fast forward to 2018 and regional variation has increased slightly, with the West Midlands the biggest riser at 5.8% while London and the North East have fallen (0.7% and 0.6% respectively). However, the rest of the regions lie in a relatively small range of 2.1% – 4.8% growth, indicating that convergence is increasing. There is another strong indicator of convergence in the UK property market. New buyer enquiries (according to RICS) are flat having been negative since early 2017, while new vendor enquiries have been positive for the last two months. This shows that we have an increase in both demand and supply at the same time as positive house price growth.
It appears that Prime London house price falls have now fed through to the data and we will see London start to make modest gains in the coming months. That London is one of the biggest fallers, albeit modestly, indicates that the affordability of the capital is starting to improve, just as property prices in the regions rise at a sustainable pace in line with inflation. A continuation of these trends would be very positive for the economy.