UK house prices are continuing to climb, driven by sharp rises in London and the east of England.
The Office for National Statistics said on Tuesday that prices rose 6.7 per cent in the year to December, slightly slower than the 7.7 per cent seen in the year to November.
London and the east led the way, with prices increasing more than 9 per cent. At the other end, prices fell 0.2 per cent in Scotland and rose 1 per cent in Wales.
Richard Snook, senior economist at professional services firm PwC, said the problems of “generation rent” would continue as average prices grew at almost three times the pace of average earnings growth.
A PwC report published on Tuesday forecast that London would be transformed from a city of homeowners to a city of renters in a generation.
In 2000 about 60 per cent of Londoners owned their own homes, but PwC forecast this could fall to 40 per cent by 2025. “High prices are making homes in the capital unaffordable to most and could undo a century-long trend towards rising home ownership rates,” Mr Snook said.
Most of the capital’s postcodes already have average prices in excess of half a million pounds, including formerly unfashionable Peckham.
In a further sign of pent-up demand, more than 70,000 renters have joined the waiting list for the government’s starter home scheme, even though it has yet to launch.
In 2013-14, the ownership rate in England reached its lowest point in 30 years at 63.3 per cent, despite many policies from the Conservative-led government to boost home ownership.
With interest rates expected to remain on hold for a considerable period, and the domestic economy and labour market looking solid despite the turmoil on the markets, most commentators expect prices to continue rising this year.
Forecasts, however, are complicated by the unknown impact of the government-imposed restrictions on the buy-to-let sector. With a tax surcharge due to take effect in April, there have been reports that would-be landlords are piling into the market determined to complete purchases beforehand.
But data from the Council for Mortgage Lenders, also published on Tuesday, showed a month-on-month decrease in gross buy-to-let lending in December. Overall lending remained healthy, with the CML recording the highest number of quarterly loans to purchase a home for eight years.
Jonathan Harris, director of mortgage brokers Anderson Harris, said while the government’s measures would “deter more speculative investors, those landlords who are looking for long-term investments are unlikely to sell up en masse or desert the sector in droves”.
Even with less favourable tax treatment for buy-to-let purchases, with interest rates set to remain lower for longer and uncertainty on the equity markets, many investors are still looking at property.