In the past decade there has been a divergence between house prices in different parts of the UK. In particular, house prices in London and surrounding areas has rocketed to unprecedented levels.
According to the ONS, average mix-adjusted house prices in September 2015 stood at £299,000 in England, £175,000 in Wales, £199,000 in Scotland and £162,000 in Northern Ireland.
Most expensive region
The most expensive region is unexpectedly London – with average house price standing at £531,000
North East had the lowest average house price at £158,000.
House price to earnings ratio
Part of the difference between house prices is the greater availability of jobs in London. London salaries are higher than the national average. However, the difference in house prices is only partially caused by differences in wages. This shows that there are large differences in the ratio of house price to income ratios for first time buyers in different regions.
Changes in regional house prices
It is interesting that in mid 1990s, regional house prices converge with house price to income ratios falling below 3.0 in all regions. But, since the mid 1990s, the gap has widened. It is fair to say house prices are more volatile in London and the South West than elsewhere.
Reasons for house price differences
Limited supply in London and south. Simple economics suggests that if demand is greater than supply, prices will rise. London and the south is seeing a rise in population, a rise in demand for housing, yet supply cannot keep up – pushing prices higher. In the north, Scotland and Wales, there is less population growth and the pressures on housing are much less.
Difference in population growth rates. The population of London is growing faster than elsewhere.
Speculation and buy to let. Rising house prices in the south has attracted buy to let investors – foreign investors looking to benefit from rising asset prices. It is a self-perpetuating circle with rising house prices encouraging further demand.