House price inflation in UK cities has leapt to 10.1% per annum thanks to scarcity of homes and rising demand, according to Hometrack's latest UK Cities House Price Index, after the second half of 2015 witnessed accelerating house price rises.
In the 12 months to November, the Index found that London saw the fastest rate of growth out of the 20 cities surveyed, with inflation reaching 13.3%, only slightly down from the 14.7% recorded in November 2014. This equates to a staggering £52,900 increase in the average price of a home in the capital, according to the report's calculations. At the opposite end of the scale, Aberdeen saw the weakest growth out of all the UK's cities, with prices falling by 2.0%, a drastic turnaround from the 12% year-on-year increase recorded in 2014.
But what has been driving the overall increase in prices across the UK's cities? Well, a lack of available homes has once again been highlighted as a key concern, with the report noting that a "chronic shortage of homes" was a prominent feature of the 2015 housing market. At the same time, demand has remained high and the imbalance between the two has shrunk the discount between asking and selling prices: discounts of just 1% were recorded in London in September, with an average of 2.8% across all other cities in England and Wales.
As a result of rising house prices, the report calculated that the average income needed to purchase a home in a UK city is now £49,700 (if an average mortgage at 3.5 times income is used). This is a significant increase from the average of £45,200 recorded last year, and is particularly notable considering that mortgage rates reached record lows during the year.
House price inflation across major UK cities looks set to continue beyond the New Year, too, with the report predicting city house price growth of 7% in 2016. This continuing rise is expected to come from regional cities, and is again predicted to stem from a shortage of homes.
"We expect the scarcity of homes for sale to remain a feature of the housing market in 2016," said the report. "This will only ease once we see greater levels of output from home builders, higher levels of activity among homeowners and lower demand from buyers who have nothing to sell, in particular investors."
So, how can you cope with the price rises over the coming year if you are looking to buy a home?
Well, the best thing you can do is to save as much as you possibly can. Mortgage rates are currently still low, but they are likely to rise over the next year, so getting a good-sized deposit will mean you can secure a more cost-effective mortgage. If you're a first-time buyer, you may want to look into a Help to Buy ISA – these ISAs enable you to save up for that all-important deposit while also benefiting from a Government-sponsored cash boost, so it's worth checking to see if you're eligible.
If not, there are plenty of other savings vehicles available – why not check out our top regular savings accounts? You may also want to take a look at the best cash ISAs, which will enable you to save up to £15,240 tax-free.
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