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London pushes house price growth acceleration

Prices continue to rise much faster in London than elsewhere in the UK, with growth of 6.4% over the year to December, while the average increase across the rest of the country was a more sedate 2.4%.

Katie Evans, Economist, Centre for Economics and Business Research said: "London house prices have been driven by strong population growth in the region – the fastest in the UK according to the 2011 census – while housing supply growth has been sluggish.

"By contrast, population growth has been slowest in North East England, meaning housing demand is weaker. House prices in this region fell by 0.6% in the year to December. In Northern Ireland, which is tied to the Republic of Ireland’s troubled economy, house prices continue to fall. Tentative signs, however, suggest these price falls are slowing – prices in the region fell 5.7% in the 12 months to December, compared to 11.5% in the year to October. The average house price in Northern Ireland has nearly halved from its pre-crisis peak of £249,000 to £130,000.

"Bank of England data suggest that the Funding for Lending Scheme (FLS) has succeeded in reducing mortgage rates. The average two-year fixed rate on a 75% loan-to-value mortgage fell from 3.7% in August to 3.1% in January, while rates on a similar 90% loan-to-value mortgage fell by 1.2 percentage points from August to January – from 5.9% to 4.7%.

"The population of London continues to grow faster than the UK as a whole, while the housing supply growth fails to keep pace. House prices in this region are thus likely to continue to outstrip the rest of the UK, although as the international economy stabilises, ‘hot money’ flows from emerging markets are likely to be less prevalent this year, which may mean price growth  is slightly slower here in 2013. Across the country as a whole, continued improved mortgage availability and lower mortgage rates as a result of FLS mean prices should continue to grow, although we do not expect them to surpass the pre-crisis peak until 2014."

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