Data released this morning by the Office for National Statistics (ONS) show that the price of a typical home in the UK rose by 2.2% over the year to January 2013, slightly slower than consensus expectations of a 2.4% rise. Today’s growth figure represents an easing of the 3.3% growth rate seen over the 12 months to December 2012.
Prices rose by a significant 5.5% over the year in London where they are now 8.5% above their pre-crisis peak. In Northern Ireland, prices fell by 5.4%, continuing a string of declines lasting since early 2008. The price of a typical home in Northern Ireland is now just under half its mid-2007 peak, owing to the povince’s ties with the Irish Republic’s moribund market.
Prices in the South-East and North-West increased by 1.2% and 1.1% respectively over the year to January. Excluding London, UK house prices rose by a sedate 1.2% over the year, showing that London is becoming ever more divorced from the UK’s wider housing market.
The London housing market has been supported by three trends. Population growth in the capital, owing to migration from the UK’s other regions and abroad, has pushed up demand for homes as supply has failed to keep pace.
Secondly, London’s economy is expanding faster than many other regions of the UK and the capital’s concentration of high-paying business services and financial sector jobs also support the housing market. Finally, turmoil in the Eurozone drove foreign buyers to London, pushing up property prices.
Across the UK as a whole, early data suggest that the Bank of England’s Funding for lending Scheme (FLS) has reduced mortgage rates; the average two-year fixed rate on a 75% loan-to-value mortgage fell from 3.7% in August to 3.1% in January. Combined with quantitative easing and the Deputy Prime Minister’s desire to put the scheme “on steroids”, the FLS is expected to ease mortgage market conditions, supporting house prices.
The pound has weakened markedly since early January as the UK failed to achieve economic growth and a further tranche of quantitative easing became ever more likely. Sterling depreciation has made London property more affordable for foreign buyers.
The weak pound probably pushed up house prices modestly in January. If the pound fails to recover lost ground, the weak currency has the potential to increase London prices throughout 2013.
For more information, go on-line for the Centre for Economics and Business Research at: www. www.cebr.com