House prices up 5% or more in top 20 UK cities

All the UK's top 20 cities are registering annual house price growth of more than 5% for the first time since November 2004, according to Hometrack.

Hometrack's UK Cities House Price Index says the house price growth is more than three-times the current growth in average UK earnings (1.3%), as pent up demand has fed back into the market supported by low mortgage rates and a pick-up in the economy.

However, there is clear evidence that the upward pressure on house price is starting to slow on weaker demand for housing. In the past three months, average UK house prices have grown by 0.6% per month compared to 1.1% in the three months to May 2014.

The majority of cities are now starting to show signs of a deceleration in the underlying rate of growth but cities with the lowest growth in Spring 2014 -Glasgow, Edinburgh and Newcastle - have recorded an acceleration as house prices rise off a low base.

This latest analysis shows that 11 cities have an average house price below that of the UK with Liverpool and Glasgow house prices 41% lower than the UK average. London bucks the trend with an average house price of more than double that of the UK at 117%, illustrating how the capital dominates the rest of the country and is distorting the national picture.

Oxford and Cambridge have seen average prices come off the boil quite sharply in the last three months (-1.2% and -2.3% respectively) with house prices starting to fall back after very strong gains of 42% and 52% in the past four years - these smaller cities are seeing pricing levels respond more quickly to weaker demand.

Richard Donnell, research director at Hometrack, said: The pick-up in house prices that started two years ago has spread across all UK cities with growth ranging from 5.5% in Liverpool and Glasgow to 18% in London. This latest analysis shows that momentum in house price increases is starting to slow with less pent-up demand for housing than two years ago.

Whilst mortgage rates remain low, new mortgage affordability tests and loan to income caps are impacting on the ability of marginal buyers to access the market, especially in the higher value markets such as London. On top of this, concerns over the impact of the global economy on the UK's economic outlook are likely to come more to the fore.

Despite the economic uncertainty, the slowdown in the UK housing market will be welcome news for policy makers who want to avoid a debt fuelled acceleration in house prices supported by record low mortgage rates. We expect the rate of house price growth to slow further in the run up to the year end.