Economists are warning the gap between house prices in London and the rest of the UK will only get bigger after the Office for National Statistics’ July index revealed house prices had surged in the capital by 9.7 per cent year-on-year.
By contrast the index showed stable house price growth across the rest of the country and overall prices rose 3.3 per cent, up from growth of 3.1 per cent the month before.
The South East region saw prices rise by 2.6 per cent with the East Midlands slightly lower on 2.4 per cent.
But strip out London and the South East and the average UK house price increased by 0.8 per cent in the year to July 2013.
Housing economist Gary Styles says the big problem for the Government and Bank of England will be getting the right interest rate policy to suit the different regional housing markets.
He says: ”This is very early on but by the middle of next year I’d expect the gap to be even wider in terms of the growth in the London market compared with the rest of the UK. Coming up with a policy to suit both the London market and the rest of the country will be very difficult.
”It might be the right time to review overall active regional policy – I can see a scenario where this dichotomy just gets wider if we don’t address this issue now. The short-term issue is whether the second Help to Buy phase should go ahead when it typically benefits London and the South East markets more.”
The UK index is yet to reach the peak level seen in January 2008 but the index for England,which is now at 182.4, has surpassed the January 2008 peak by 0.9 per cent.
First-time buyers paid an average price in July 2013 four per cent higher than the previous July while existing owners faced a price increase of three per cent.
Mortgage Advice Bureau head of lending Brian Murphy says: “These figures should help ease concerns that Help to Buy is already driving property inflation at a dangerous rate.
“Although house prices in London are increasing significantly faster than the UK average, overall house prices have risen at a stable rate, suggesting a recovery that is sustainable rather than combustible.”
But Aldermore Bank’s residential mortgages managing director Charles Haresnape shares Murphy’s view that the ONS figures will cool fears of a housing bubble.
Haresnape says: “This house price data for July confirms that recent fretting about an imminent housing bubble is over the top.
“House price rises in England are being massively skewed by London. Many regions either fell or grew very slightly. Reports of a house price bubble have been greatly exaggerated.”