UK property market uneven, with London and southeast driving prices

Home values in capital up nearly 10 per cent year on year in July, but other regions saw falls - a challenge if policymakers seek to slow lending

PUBLISHED : Wednesday, 25 September, 2013, 12:00am
UPDATED : Wednesday, 25 September, 2013, 4:44am


House prices in parts of Britain continued to surge upwards in July, with homes in London fetching almost 10 per cent more than the year before, official figures showed.

Amid warnings of a house price bubble and even calls for a house price cap from some quarters, the Office of National Statistics reported the cost of a UK home increased by 0.3 per cent during the month and was up by 3.3 per cent on July 2012 at £242,000 (HK$3 million).

Although recent lending figures show the number of people buying homes remains below the last property boom, there are signs that the market is hotting up in some areas.

The ONS said across England, prices have now passed their 2008 peak, with the average cost of a home hitting £255,000.

However, the headline rate is being driven by a big jump in London, which saw 9.7 per cent growth year on year, to an average of £438,000 and moves of around 2.5 per cent in the southeast and East Midlands.

In Scotland, prices were down by 2 per cent year on year, while Wales saw a 0.7 per cent fall.

Once figures for London and the southeast are stripped out, house prices were up by just 0.8 per cent over 12 months.

"House price growth remains stable across most of the UK, although prices in London are increasing faster than the UK average," the ONS said.

The ONS figures, which are based on data from mortgage lenders so do not include cash purchases, could make worrying reading for policymakers who have been warned of the dangers of inflating a house price bubble with the launch of the second phase of the Help to Buy scheme in January.

The scheme, which is designed to help homebuyers who can only raise a small deposit, has already supported confidence in the market, but there are concerns that making more mortgage funding available without more homes could take homes even further out of reach of the people it is supposed to help and lead to unsustainable price rises.

The ONS figures show that first-time buyers are already being hit by price rises.

The average price they paid for properties rose by 4 per cent over the year to July to £183,000, against a 3 per cent rise in the average price paid by existing homeowners who were moving.

The vast differences in housing markets around the country suggests that if the Bank of England did want to take action to reduce the flow of mortgages, it might have to explore whether it could do so at a regional level.

In England, prices were up in seven out of nine regions, but fell by 1.3 per cent in the northeast and 0.7 per cent in the northwest. In two regions, London and the southeast, the index is higher than its previous peak, while in the east and southwest of England house prices are approaching those levels.

Elsewhere, however, the market has not recovered to those heights, and there are borrowers trapped in negative equity.

Howard Archer, chief UK economist at IHS Global Insight, said the potential for further house price rises was likely to be capped in the near term by low earnings growth and the fact that housing market activity is still below pre-crisis levels.

However, he added: "There is a mounting danger that house prices could really take off further out, especially as a shortage of new properties for sale could be a significant factor in some areas, notably London and the southeast.

"While an improving housing market is helpful to growth prospects, it is vitally important for stability and longer-term growth prospects that a new housing price bubble does not emerge."

Brian Murphy, head of lending at Mortgage Advice Bureau, said the figures should go some way to ease concerns that Help to Buy is driving property inflation "at a dangerous rate".