London house prices rocket 18% in a year

2 April 2014

House prices in London rocketed by 18% in the year to March 2014, fuelling fears of a bubble in the capital.

The typical price of a home in London now stands at £362,699 - 15 times the average salary in the UK of £23,452.

Prices in the capital are now at 20% above their pre-crisis peak in 2007. "The gap between house prices in London and the rest of the UK is the widest it's ever been, both in cash and percentage terms," said Robert Gardner, Nationwide's chief economist.

He said record low mortgage rates, improved availability of credit and the brighter economic outlook are all leading to increased demand for housing - at the same time as the supply of new-build homes is lagging way behind what is required.

"The number of new homes being built in England is still around 40% below pre-crisis levels (and this was already insufficient to keep up with the increase in the number of households being formed)," added Gardner.

But house price growth across the rest of the country was more modest, at 9.5% in the year to March, with a 0.4% rise in the month itself. The average price of a home in the UK is now £180,264, roughly 7.5 times the average UK salary.

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Shortage of stock

Rory Penn, partner of London estate agency VanHan, said: "Nationwide's latest data will not completely comfort those worried about a house-price bubble as prices rose for the 15th consecutive month.

"London again led the surge, with the average property costing twice as much as elsewhere in the UK. This is causing more Londoners to stay put rather than make the natural progression out to the countryside, fearful that they will ever afford to buy in London again, and further contributing to the shortage of stock for sale in the capital."

Using Nationwide's house price index, the average UK house price in March was March was the highest level since January 2008 - but still 3.1% below the record high of £186,044 seen in October 2007.

But Howard Archer of IHS Global Insight warned that monthly reporting of house price statistics can be "erratic". He said: "There are tentative signs that a little bit of the froth of the housing market may be coming off, although it is still robust. Furthermore, it needs to be borne in mind that activity and prices can be erratic from month to month."

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