Last week we heard that the property market is starting to cool and that house price inflation has peaked. There are many commentators, despite the increase in September, who believe that house prices will fall next year and the market will get tougher. This argument is predominantly driven by London house prices levelling off, tougher mortgage lending rules and affordability. However, I'm not sure that I agree with these conclusions.
Halifax recently reported that the average house price increased by £1,100 in September and overall by £16,257 on an annual basis, with the average UK property now costing £187,188. London house prices fell last month for the first time in three years and the remainder of the UK reported the smallest monthly increases for over a year.
It was no surprise to me to see Rightmove make much bolder claims about the housing market over the coming years and that for the first time in more than a decade areas outside of London will lead the way in price rises. I recently described the property market in London as a balloon that has had oxygen pumped into it allowing it to spread further and further from the heart of the capital engulfing other regions in its inflationary house pricing activity. The oxygen from London is now slowing because house prices in London for people like you and I have reached a peak and therefore we must all look at properties in our price range which will be further and further away from London.
Rightmove predicts that Southampton will see the fastest house price increases in the country, with values expected to rise by 43% over the next five years. Luton, Brighton and Swindon will also enjoy increases in excess of 40%. The smallest rises will be in the parts of London that have enjoyed the greatest price rises in recent years. This is in stark contrast to Royal Institution of Chartered Surveyors who referred to fading price momentum outside of London, Halifax who believe that prices have peaked and think tank CEBR who are expecting house prices to fall next year.
To me, it makes much more sense to look closely at the way in which the housing market has been operating in recent times. Prices have been driven higher from London and at rates greater than wage inflation. Most people cannot afford to pay these unsustainable prices in areas that have been engulfed by the London balloon. As a result there will be a slowing down of price inflation in those areas outside the central heart of the capital as people retreat to areas where they can get more for their money but still access the capital. It is also important to make it clear that there are still average house prices that remain below their 2008 peak.
There is strong support to suggest that buyers will look further afield and it will have an upward impact on prices in those regions because it will create greater competition. So when Rightmove, assisted by Oxford Economics, predicted that house prices will increase in areas with good commuter links to London and the surrounding areas such as Southampton, Brighton, Swindon and Watford there is in my mind good reason to conclude that there are optimistic times ahead for a number of markets throughout the UK. It is good news for the property market if the London prices stabilise, for the people of London and for the wider economy provided that the outer areas experiences steady and affordable growth.