London house prices are on track to end the year at their highest annual rate of growth since 2002, greatly outperforming other regions and highlighting the extent to which the capital’s housing market is breaking away from the rest of the country.
The latest FT house price index, published on Friday, shows that annual London house price inflation was 12.7 per cent in October after accelerating steadily throughout the year from 5.1 per cent in January.
If London house price growth continues at its current rate, by December the annual rate will be between 11-12 per cent - the highest since December 2002.
Peter Williams, chairman of Acadametrics, the consultancy that compiles the FT house price index, said low new housing supply had driven up prices in London and the south-east.
While he expected the Bank of England’s two interest rate rises this year to help damp house price growth outside the capital, “there remains a strong possibility that the London market will be even slower to adapt to these rate changes because localised supply shortages continue to dominate a generally low housing turnover market,” he said.
Savills, the estate agency, predicted last month that London house price growth would continue to be strong next year, buoyed by large bonuses in the capital’s financial district and demand from wealthy overseas buyers.
After slowing sharply in 2005, annual house price inflation across the whole of England and Wales this year has risen from 3.7 per cent in January to 7.3 per cent in November, according to the FT house price index.
But the regional divergence is wide. In East Midlands, house prices grew at an annual rate of 3.1 per cent in October - lower than anywhere else. At 6.6 per cent, the south-east had the highest house price inflation after London. In most regions, house prices are growing at an annual rate of between 4-5 per cent.
London was the only region in England and Wales in which prices rose above the national average of 7 per cent in October, emphasising the degree of over-performance in the capital.
The FT’s index is lower than other indices, partly because it excludes Scotland and Northern Ireland’s house prices, which have been rising at an annual rate of more than 12 per cent, according to the Department for Communities and Local Government.
The other important difference from the mortgage lenders’ figures, which show annual house price inflation of over 9 per cent, is that the FT index is based on every property transaction, regardless of whether it is backed by a mortgage. Consequently, its numbers move around less than those of lenders, which are based on smaller samples and have, in the past, exaggerated the volatility of house price movements.
The FT index also measures prices when houses are sold, rather than when a mortgage is agreed, so it only includes transactions that are completed.
