London surge boosts house price growth

Another surge in London’s house prices helped to nudge house price inflation a little higher to 5.6 per cent in June, according to the FT house price index. See interactive map.

Bucking the trend of a slowing housing market in other regions of England and Wales, the capital’s house prices rose by 10.3 per cent over the 12 months to May.

In the past two months, there have been signs that there was a widespread pick-up in lending after a lull around Easter but the FT index shows this to be primarily a London phenomenon.

Acadametrics, the consultancy that compiles the figures, said that the monthly increases in house prices across England and Wales had slowed to 0.3 per cent in June from 0.4 per cent and 0.5 per cent in the previous two months.

Gary Styles, chief economist of Acadametrics said that in contrast to a slowing trend elsewhere, London prices “continue to power ahead”, with rises “nearly twice the national average and four times the weakest performing region“.

“London may continue to show exceptional strength for the next few months as supply shortages support prices,” he added.

The rise in the annual rate of house price inflation from an upwardly revised 5.5 per cent in May to 5.6 per cent in June continued a trend of rising house price inflation that has been steady since the trough of 3.3 per cent growth in November. Unless other regions begin to emulate London’s rapid gains, the inflation rate is likely to level off in the coming months.

Annual gains in other regions were much more modest with the North of England and Wales recording price rises in excess of 6 per cent, while inflation in the all the other English regions, including the South East, was within a percentage point of 3 per cent.

Mr Styles said the outlook for the country outside London was for more of the same: “We expect to see a steady and stable performance from house prices and activity across the country in the remainder of 2006 as the outlook for interest rates and employment prospects limit any potential market exuberance”.

The FT index is based on the sale prices of all transactions in the property market as they are reported to the Land Registry. It presents a picture of the housing market, similar to the 5 per cent inflation reported by Nationwide, the building society.

Figures from the Halifax, the lender, showing annual inflation of 9.4 per cent in June are much higher than any other estimate of house price inflation, and probably reflect the smaller sample of its mortgage approvals which it uses to estimate house price inflation.

A large proportion of transactions in the market remain large and expensive properties in the South of England, which are proving easier to sell at the moment. The FT house price index adjusts for the fact that a greater than usual proportion of properties sold are expensive; without the mix-adjustment, it would show house price inflation of 7.3 per cent.

To provide timely information on house prices, the FT index combines all the latest information available on the Land Registry’s database of housing transactions and augments this information with statistical models to estimate the most recent trends.

Revisions of past data are inevitable. This month the revisions are small with the average England and Wales house price for May revised up from £203,080 to £203,347.