New analysis by Hometrack shows that large regional cities like Edinburgh, Birmingham and Manchester look set for a 20 per cent to 30 per cent increase in house prices over the next four years as they close the gap to London.
The data consultancy says that while regional cities have lagged the London market they are now starting to close the gap. Cities outside southern England have further room for house price growth, it claims, but it cautions that the scale of growth seen in London and elsewhere over the past decade is unlikely to be repeated.
Since 2009, average house prices in London have raced up by 86 per cent, followed by Oxford, Cambridge and Bristol where prices have grown 70 per cent or more.
These levels of growth are unlikely to be replicated, however, because of affordability levels being very high and there being more uncertainty over investment levels in buy to let and from overseas purchasers.
Even so, Hometrack says overall UK city house price inflation is currently running at five per cent - up from four per cent a year ago - with the highest annual returns coming now from Edinburgh (where prices have risen 7.7 per cent in the past 12 months), Birmingham (7.3 per cent) and Manchester (6.7 per cent).
In contrast, the pace of growth in the capital has slowed to 1.6 per cent year on year meaning house prices in London are falling in real terms.
“We expect to see average house prices rise by 20 per cent to 30 per cent in cities like Edinburgh, Birmingham and Manchester in the next three to four years. The income to buy a home in regional cities is well below the London average so in the near term we expect to see rising house prices stimulating additional buying and market activity in those areas” according to Richard Donnell, Insight Director at Hometrack.
“House prices have some way to increase before there is a material constraint on demand. This assumes mortgage rates remain low by historic standards and the economy to continues to grow” he adds.