House prices were up by 4.3 per cent over the last three months, representing the highest quarterly growth for 11 years, according to Hometrack’s UK cities index.
The rise is vastly outstripping the 2.4 per cent annual growth in average earnings.
Hometrack said the 4.3 per cent house price rise is due to upward momentum coming on the back of a 32 per cent increase in transaction volumes since April – mortgage lending for home purchase has grown 26 per cent over the same period.
Annual house price inflation across the UK is accelerating as demand for housing continues to outstrip supply, with the latest index showing city level house price inflation running at 8.5 per cent in July, compared to 7.2 per cent in April.
The highest year-on-year growth of 10.9 per cent was registered in Cambridge, followed by Oxford, London and Bristol. The lowest growth rate is being registered in Aberdeen at -0.7 per cent.
Richard Donnell, director of research at the residential analyst firm, said that there remains further upside for city level house prices over the remainder of 2015.
“Low mortgage rates, economic growth and rising earnings will continue to stimulate demand and put an upward pressure on prices.
“How long this can be sustained is down to the prospects for the different segments of demand, specifically international buyers, domestic investors and domestic home owners; overall city level house price inflation remains on track for 10 per cent growth in 2015.”
Jeremy Duncombe, director at Legal and General’s Mortgage Club, explained that in part, prices are being driven by increased activity in the housing market, but prices are also being pushed up by a lack of available properties.
“For many years, we have simply not been building enough properties to keep up with demand, particularly as the number of households in the UK grows.
“This not only makes it harder for first time buyers to step onto the property ladder, but also for those who already own their home to buy another,” he continued, adding that to stop prices rising so quickly, the UK needs to build around 240,000 houses each year in order to ease the competition for properties.
Earlier this month, the government launched two new initiatives to boost housebuilding, rolling out a £26m fund for developers to build homes for first-time buyers and unlocking £10m for local authorities to prepare more ‘brownfield’ land for starter homes development.
The £26m fund will support architects, developers, councils, housing associations and small builders to build properties that will increase the quality of design as the government delivers on its pledge to build 200,000 starter homes by 2020.
Meanwhile, up to £10m grant funding will be open to councils to assist them in bringing forward brownfield sites that are currently underused or vacant, helping carry out preparation, clearance and infrastructure work to make them viable for starter homes.
peter.walker@ft.com
