Nationwide's warning of property bubble as London house prices soar 14.9%
01-05-2014
Going up: the average London home is now worth £345,186
Russell Lynch
The UK’s biggest building society today gave its starkest warning yet about a potential house price bubble as values in London surged nearly 15% in the last year.
Nationwide’s latest index showed another 1.4% jump in UK house prices during December — the biggest rise in a single month for four years — leaving them 8.4% ahead of a year earlier.
While overall UK prices are still 5% below 2007 levels, average prices in the capital, where Business Secretary Vince Cable warned of a bubble this week, now stand at £345,186. This is 14% above the top of the market after a stellar 14.9% rise in the last 12 months.
The capital’s acute shortage of homes plus a queue of foreign buyers and the stronger economy has fuelled the increase, as the wider market feels the benefit of support schemes from the Bank of England and the Government providing cheaper and more plentiful mortgages. Mortgage approvals jumped 4% to 70,758 in November, above the 70,000 mark for the first time since January 2008 according to the Bank, which has acted to slow the flow of credit into the mortgage market.
But Nationwide warned that in the third quarter of 2013 the number of new homes built was 45% below pre-crisis levels, while transaction levels are just 25% down.
Chief economist Robert Gardner said buyer numbers remained “subdued” by historical standards but added: “The risk is that if demand continues to run ahead of supply in the quarters ahead, affordability may become stretched. House price growth has been outstripping average earnings growth since the middle of the year.”