UK house prices rise in June at fastest rate in over 9 years
British house prices rose at their fastest annual pace in more than nine years last month, and prices in London have shown their biggest jump in a generation, figures from mortgage lender Nationwide showed on Wednesday.
House prices rose by 1pc on the month in June after a 0.7pc rise in May, taking the annual rate of increase to 11.8pc - the biggest rise since January 2005.
Both the monthly and the annual growth rates exceeded all forecasts in a Reuters poll, in which economists had predicted that the rate of growth would stabilise.
But the most striking number was for London, where house prices in the three months to June were 25.8pc higher than a year earlier - an annual increase not seen since 1987.
"The price of a typical property in London reached the 400,000 pound ($681,000) mark for the first time, with prices in the capital now around 30pc above their 2007 highs and more than twice the level prevailing in the rest of the UK," said Nationwide's chief economist Robert Gardner.
Average house prices outside London are a fraction below their 2007 peak, Gardner said, while transaction levels nationally are still well below their historic average.
The figures throw into sharp relief the challenge facing the Bank of England as it tries to stop a regional housing boom from destabilising the rest of the economy.
In an attempt to stop Britons borrowing too much, last week the central bank said that no more than 15pc of new mortgages could be to people seeking to borrow over 4.5 times their annual income.
Around 10pc of loans fall into this category nationally, rising to roughly 20pc in London.
Nationwide said this cap and new tighter affordability checks were unlikely to slow house price growth in the short run, but that the prospect of higher interest rates might.
Speculation that the BoE will raise interest rates later this year or early in 2015 was already pushing up longer-term market interest rates, Gardner said.
"If this is sustained, it is likely to feed through to mortgage rates, which would also help to prevent buyer demand rising too strongly."
But Nationwide said the underlying pressure on house prices came from a lack of new homes being built - a view shared by the BoE, which says its focus is on debt rather than house prices.