House price inflation in London has fallen to its lowest level for four years and could continue to slow during 2017.
The January Hometrack UK Cities House Price Index reveals price growth in London has dropped to 6.4 per cent - the lowest level since June 2013.
While house prices in the capital are up 85 per cent compared with 2009, the market analyst expects growth to slow towards 0 per cent over 2017.
The slowdown is due to Inner London housing markets with the highest capital values acting as a drag on growth as they register falls of up to 3 per cent due to weaker demand compared with outer London.
Richard Donnell, insight director at Hometrack, said: "Growth in London has been superseded by large regional cities such as Manchester, Liverpool and Birmingham.
"When you consider that house prices in London are 85 per cent higher than they were in 2009 it is not surprising that the pace of increases is slowing toward a standstill as very high house price increases mean affordability is stretched.
"The contrast with large regional cities outside of London and the south east couldn’t be starker. They continue to register robust levels of house price inflation in excess of 7 per cent. The question is how much further house prices in regional cities could have to run were house prices to fully ‘price in’ low mortgage rates supported by rising incomes and employment.
"In our view there is material upside for house prices in the coming years in many cities where the recovery since 2009 has been limited. Typically those where investment in employment, infrastructure and regeneration will help stimulate the local economy. The timing and scale of future house price growth will, of course, depend upon the outlook for jobs, incomes and mortgage rates."
Outside of the capital the recovery has been more protracted, and the headline rate of growth for the UK Cities House Price Index is now running at 6.9 per cent, compared to 7.9 per cent in January 2016.
In Newcastle, Glasgow and Liverpool, prices are up between 13 per cent and 16 per cent since 2009, and are expected to continue to grow strongly.
The biggest rise outside of the south last year was in Manchester, which witnessed an increase of 8.3 per cent, while Birmingham and Liverpool have also overtaken London.
Jeremy Duncombe, director of Legal & General Mortgage Club, said: “London house price growth has slowed to its lowest level in four years and may well slow further in the coming months - stamp duty appears to be killing off the rapid inflation in the capital. In practice, this means other cities such as Birmingham and Liverpool are taking up the mantle of fastest growing house prices.
“Average UK house price inflation remains 6.9 per cent year-on-year. This is pushing home ownership into an unattainable dream for many renters across the country. It could be argued that the Housing White Paper didn't go far enough, but any progress will be welcomed by first time buyers and those looking to move up or down the ladder.”
simon.allin@ft.com
