House price growth in London has fallen to its lowest level in more than three years, according to the latest Hometrack UK cities house price index.
Growth fell to 7.6 per cent as affordability pressures and policy changes aimed at investors weakened demand.
Hometrack predicted growth of 4 per cent over 2017 with above average increases in large regional cities projected to offset low nominal growth in London.
Richard Donnell, insight director at Hometrack, said: “In London and southern cities homeowners are facing the greatest affordability pressures, while the buoyant investor market has been impacted by fiscal changes, as well as tougher underwriting standards for mortgage borrowers.
“In larger regional UK cities, such as Birmingham and Manchester, affordability remains attractive and we believe there is room for further price growth over 2017.
“With this in mind, we predict that city level house price growth in 2017 will run slightly higher than the current consensus of 2 to 3 per cent, however this will largely be driven by the scale of the slowdown in London.”
The overall headline rate of inflation for the UK cities house price index is currently running at 7.7 per cent, marginally higher than a year ago and in line with Hometrack’s projection for 7 per cent capital value growth over 2016.
The cities where house prices are now decelerating after five years of high growth, such as London, Oxford, Bournemouth, Bristol and Cambridge, are set to record a 5 per cent contraction in sales in 2016.
Meanwhile Aberdeen, which is continuing to see house price falls of 6.4 per cent a year, is also expected to see a similar shift in activity.
But cities registering sustained growth in house prices are the ones expected to record higher turnover over 2016, with the greatest uplift likely in Birmingham, Leeds, Leicester and Nottingham.