Asking prices in London jumped 5.2% to an average £541,313 from January – on the year, they rose 11.2%. Nationally, values rose 3.3% from the previous month and 6.9% on the year, the best annual performance since November 2007. Average asking prices of a home are now above the 1% stamp duty threshold of £250,000, standing at £251,964.
But we remain unmoved. While UK house prices are above average on valuation measures, our measure of affordability suggests that gains of 6-7% are plausible over the coming year. The main driver remains the availability of cheap finance and despite overvalued house prices, affordability has improved (given low interest rates) and we expect the Bank of England to keep rates at their record low level well into 2015.
A good measure of value is the ratio of house prices to nominal (including inflation) GDP. Admittedly, prices on this measure have been above average since 2002, but at 6% above average they are not currently looking like they are in a bubble. Mortgage applications are also still well below their pre-crisis levels.
This is why we expect the UK residential property market to rise and become less London-centric. Rising mortgage lending, low interest rates and a recovering economy will all help the domestic buyer.
There will also be a ripple effect from record London prices driving buyers into adjoining areas. Price increases will remain focused on the upper end of most local markets, but the low levels of transactions suggest that talk of a property boom is short of the mark.
