According to data by rental property market specialist Hometrack, the first quarter of 2016 saw a house price growth in inner cities of 4.2%, the highest level in 12 years.
The impressive increase is mainly caused by investors rushing to buy before the new stamp duty surcharge came into effect earlier this month, the research revealed. Especially city property has seen a rather dramatic increase in price, the highest in over a decade.
On an annual basis, “the year in growth for the 20 city house price index is running at 10.8%, ahead of the 8.7% for all of the UK”, the report revealed.
Investors search for the highest yield
The acceleration in house prices has mainly been driven by the growing demand from investors, particularly for high yielding property.
Tougher lending criteria and changes to tax relief on mortgage interest payments are forecast to push investors to search for higher yielding property, shifting their focus on lower value cities with lower buying costs and more support for house price growth. According to Hometrack, Liverpool, Glasgow, Aberdeen and Manchester are leading the board for highest yielding cities, making the North even more attractive for investors.
Lower yielding, higher value cities on the other hand, such as London, are forecast to experience a price growth slowdown over the rest of 2016.
The vote after the rush
The rush to beat stamp duty is now over, possibly leading to a minor drop in investor demand, according to the Hometrack data.
It also revealed that house prices will continue their rise regardless, although limited by moderate investor demand and greater caution in the run-up to the EU vote. Savvy investors might see an opportunity over the next months to buy before the rush after the vote.
All in all, cities like London that offer higher value, but lower yields are forecast to experience a more drastic drop due to the simple fact that those places are more responsive to weak investor demand.