House prices: Is the South East the next unaffordable property hotspot?

13-04-2016

House prices continued to motor ahead in the year to February 2016, fuelled by strong growth in the south of England and a supply shortage across the country. 

Property values climbed 7.6pc in the 12 months to February, with prices in the south-east of England 11.4pc higher, as people priced out of London moved further afield to buy homes.

In eastern England, property prices rose by 10.3pc, while in London they were up 9.7pc, according to the figures from the Office for National Statistics. The average house price in London is now £524,000, which is 49pc higher than the pre-crash peak. This is compared to the average UK house price of £284,000.

Nick Leeming, chairman of estate agency Jackson-Stops & Staff, said that while prices in London were increasing sharply, “there are signs that some areas are seeing slower growth rates". "

This follows lower levels of demand at the top end of the market, with our central London offices recording on average 2.4 prospective purchasers to every prospective seller in the last year, compared to 3.6 the year before," he said. "The lower demand stems from higher transaction and holding costs, such as the revisions to stamp duty, which is adversely affecting both domestic and overseas demand. This means that vendors in the capital who need to sell are reducing asking prices in order to do so."

Despite this, he said the London market was still appreciating, with some homes achieving record prices. "I would not suggest it has reached its peak", he added.

Newly-built homes saw prices increase sharply, by 9.3pc in the year to February. Scotland was the only area where prices fell. They were down 0.8pc in the 12-month period.

Stephen Smith, director of housing partnerships at Legal & General, said it was unlikely that house prices wo-uld stop rising any time soon. He said: "With the demand for housing continuing to grow, amid a lack of supply, it’s hard to see anything other than more rises to come in the short to medium term.

“The UK housing market is paralysed by the mismatch between supply and demand, and unless all parties with a vested interest in solving the crisis make a concerted effort to work together, we will continue to have a dysfunctional market, where the real loser is the consumer.”

Howard Archer, chief UK economist at IHS Global Insight, said: "House prices should be underpinned by reasonably healthy buyer interest, supported by largely decent economic fundamentals and the probability that interest rates will not rise this year, as well as by a relative shortage of properties.

"However, there could well be an appreciable easing back in buyer interest from the buy-to-let and second house buyers now that the April rise in stamp duty has kicked in. Increasing domestic economic and political uncertainties could also rein in housing market activity, especially in the run-up to June’s EU referendum."

He added that prices were also likely to be capped by stretched borrowing ratios and stricter mortgage lending criteria.

The average price of property bought by first-time buyers increased by 8pc, a faster rate of growth than the 7.7pc registered in the year to January.

The ONS’ house price index is calculated using mortgage transaction figures collected by the Council of Mortgage Lenders.