Average house prices in England surpassed their all-time peak of January 2008 to a new record high in July in a further sign the property market is heating up, official figures showed today.
Home values rose 3.3 per cent over a year ago but 2.5 per cent of that gain was driven by the property market in London and the South East. In the capital properties were worth nearly 10 per cent (9.7 per cent) more in July than a year earlier.
The surge prompted one economist to forecast house prices would grow by seven per cent next year and added to fears that Government efforts to boost mortgage lending are creating a housing bubble.
Highlighting the disparity between different parts of the country, the Office of National Statistics said Scotland saw a decline in average house prices of 2 per cent annually and Wales a fall of 0.7 per cent.
Only the North East (1.3 per cent) and North West (0.7 per cent) saw a decline in average property values in the year to July.
The ONS said the average property was now valued at £245,000, a rise of £11,000 in the past year and £3,000 from June. UK-wide the ONS said average house prices were only just below their previous January 2008 peak.
Elsewhere, house prices in Northern Ireland are nearly 50 per cent below their previous peak seen in August 2007, Scottish house prices are 6.6 per cent below their previous peak seen in June 2008 and in Wales they are 7.8 per cent off their previous January 2008 peak.
But he added: ‘A very strong upward move in house prices is unlikely for now at least given extended and ongoing very weak earnings growth and still significant pressure on many households’ finances.
‘Housing market activity is still far from buoyant compared to long-term norms despite the recent clear pick-up in activity.’
While the Bank of England reported mortgage approvals were at near three and half year high of 60,624 in July, this was still only 71.5 per cent of the average monthly level of 84,798 seen since 1983, he added.
Peter Rollings, chief executive at London-based estate agents Marsh & Parsons, described the London market as telling ‘a different story’ to the rest of the UK.
He said: ‘The huge demand for property in the most desirable parts of the capital, from both UK and overseas buyers, is helping to push prices higher.
‘In the three months to June, we recorded 11 per cent more buyers entering the market in competition for 14 per cent fewer properties. Property is changing hands in record time and for close to the asking price.’
Richard Sexton, director of e.surv chartered surveyors, warned that rising house prices in some areas threaten to price some people trying to get on the property ladder out of the market at a time when households are still under pressure from high inflation and stagnant wages.
He said: ‘If the Government wants to make housing more affordable – and avoid inflating another property bubble – then it needs to encourage more house building.’
Last week, the Royal Institution of Chartered Surveyors called for a five per cent cap to be placed on annual property value growth amid fears the housing market is already overheating.
RICS said the Bank of England should consider limiting yearly house price inflation in order to take the ‘froth’ out of any future booms and halt any ‘dangerous build up in household debt.’
The body argued that sending out a clear message that the Bank’s Financial Policy Committee – which underpins stability – will not tolerate house price rises above a certain limit would restrict any over-the-top price expectations from sellers and discourage buyers from taking on too much debt.
It suggested the Bank could put the brakes on house price growth by imposing a ceiling on the amount of money banks are allowed to lend.
RICS also suggested caps on the term of a mortgage, amount people can borrow in relation to their deposit or the sum they can borrow in relation to their income.
Business Secretary Vince Cable, has repeatedly called for a rethink on Help to Buy, fearing the launch of the guarantee scheme will only help to inflate house prices even further.
The Council of Mortgage Lenders however, has warned that talk of a house price bubble is premature with mortgage lending levels still well below their 2008 peak prior to the financial crisis.
Liberal Democrat leader and Deputy Prime Minister Nick Clegg and his colleague Treasury Secretary Danny Alexander both hit out at suggestions of a house price bubble yesterday and defended the Government’s housing policy.
Mr Clegg told the BBC the housing market was still well below its previous peak: He said: ‘We’re not talking about encouraging banks to irresponsibly lend at 120 per cent mortgages.
‘We’re just giving creditworthy customers the ability to borrow money to get their feet on the first rung of the property ladder.’
Mr Alexander meanwhile told Sky News Britain was ‘a million miles’ away from a housing bubble.
‘Of course in central London, in Kensington and Chelsea, you see very high house prices but I don’t think we should allow the tail of central London to wag the dog of this policy,’ he said.
But Mr Clegg is reportedly more uneasy about the Help to Buy scheme than he has publicly indicated and privately his aides said last night he is willing to lobby for a change to the policy if house prices appear to be unsustainable.
The Bank of England is set to discuss the possible formation of a bubble in the housing market at its Financial Policy Committee meeting tomorrow, exploring what action should be taken to prevent fall-out from a burst.
Oliver Atkinson, director of the online estate agents Urban Sales and Lettings, said house price rises were being driven by a cocktail of confidence in improving availability of credit and fear of being left behind as another boom took hold.
He said: ‘Buyer sentiment is improving steadily, and there is a growing sense that – despite the Bank of England’s forward guidance – the current cheap mortgages won’t be around forever.
‘The result is the release of a lot of pent-up demand from first-time buyers, as those who have saved hard for a deposit decide that now is the time to take the plunge.
‘But a stubborn shortage of supply is driving up prices, as many of those who had been waiting for the right moment are striking now for fear of being priced out of the market later on.
‘This sort of bullishness tinged with the fear of ‘being left behind’ stoked the last property boom. There is a danger that some will make the same mistakes again.’
PUBLISHED: 10:53, 17 September 2013 | UPDATED: 09:37, 18 September 2013 by This is Money
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