Foreign demand fuels London surge

It is keeping the governor of the Bank of England awake, but despite saying the British housing market is the "biggest threat" to the economic recovery, Mark Carney has made only modest caps to constrain a big property bubble bouncing over London.

The continued steep climbs in the price of homes in the capital is unprecedented, with one agent claiming homes in the right streets have increased in value by £588 (HK$7,699) - every day - over the past year.

But Carney, despite warning that the London housing bubble cannot continue, imposed only two minor changes to lending.

The Financial Policy Committee limited the proportion of new mortgages that are 4.5 times income to 15 per cent of a bank's total mortgage lending and insisted that banks ensure borrowers can pay off their loans, even if interest rates rise 3 per cent over the next five years. The measures were seen as a modest "fire break" to risk, but not major to deflate the housing bubble.

Yolande Barnes, director of research at one of the world's largest real estate companies, Savills, says: " There has been quite a party in London house prices since 2009. Many would say the party balloon looks over inflated but not all balloons burst - some can sit in a corner slowly deflating."

Perhaps the house-price party in London is still in full swing. According to Colliers International, demand from outside Britain for properties in the capital is still at record levels.