City house prices are set to increase by 3% in 2020, with the most affordable regional cities expected to grow by up to 4% and London increasing by 2%, according to predictions by Zoopla.
House prices registered annual growth of 3.4% over 2019, with current house price growth ranging from 5.4% in Edinburgh to -0.7% in Aberdeen.
As we come to the end of the decade, the UK city index has increased by 54%, an average price increase of £90,000 or £9,000 a year, driven to a large degree by strong growth in London.
City house price growth has varied widely over the last decade. London has registered the highest price growth over the last decade (74%) or an average price increase of £204,400, the vast majority of this growth came before 2016 when stretched affordability was compounded by multiple tax changes that reduced demand and prices drifted lower.
In contrast, house prices in Belfast and Aberdeen are virtually unchanged since 2009 albeit for different reasons. Aberdeen fell victim to the well-documented oil price crash post 2015, and Belfast, having registered six years of house price falls between 2007 and 2013, was the last city to register a sustained recovery in house prices.
Above average price growth is being registered in the most affordable cities with Glasgow, Liverpool and Belfast recording growth that is more than 2x faster than the annual average over the last decade.
The most affordable cities, with price to earnings ratios of less than 6x, are expected to register growth of up to 4% over 2020, led by cities including Glasgow, Belfast and Liverpool. Overall, UK city house price growth is projected to be 3% over 2020, broadly in line with the growth in average earnings.
Richard Donnell, research and insight director at Zoopla said, “In the wake of the election result, much has been made of the likely impact on the housing market and wider economy. The election result provides an element of certainty for households looking ahead to 2020, but the result changes very little in terms of housing market fundamentals.
“While we expect some pent-up demand to return to the market in 2020Q1, the affordability of housing across the country will dictate the level to which prices will increase in 2020. Lower mortgage rates have already been reflected in higher house prices, which means house prices are set to rise at a lower rate in future – more in line with average earnings. We expect UK city house prices to increase by 3% over 2020.
“That said, the most affordable regional cities still have some headroom for growth, and we expect them to register price growth of up to 4%. Growth will remain more muted in southern England despite modest improvements to affordability. We expect a limited boost to sales volumes in London over 2020, but for price growth to be constrained by affordability factors with London prices expected to rise by 2% over the year.
“Looking back over the last decade, lower mortgage rates and rising incomes explain most of the increase in house prices, rather than any unsustainable increased spending on housing, which has been limited by mortgage regulation. At the same time, the housing market has become less liquid, a result of economic factors and demographic change, which has been compounded by higher levels of stamp duty, and which is a barrier to movement, especially in southern England.
“As we start the next decade in housing, a top priority for the new Government is to ensure we look to remove the barriers to households moving home, with housing policy catering to the different market conditions across the country, while increasing housing choice across all tenures.”