London house prices rise by 18% in 12 months

The UK’s biggest building society has said that house prices in London had increased by 18% over the last year as house hunters chased too few homes across the capital. The numbers will not be welcomed by everybody particularly working families across London who face the prospect of having to move out of the area they were brought up in because of the rising house prices.

They are being forced out because they can’t afford to buy a property and the government is not building enough social housing to accommodate them. House prices grew 5% across London in the last three months alone but there is hope that future increases may slow down as buyers could be priced out of the market because waged have not kept up with the increases.

The news will be of concern to some ministers who will be concerned that a property bubble is developing in the capital. Prices are now higher than their peak in 2007 and they are also twice that of the national average for the rest of the UK. The gap between London and the rest of the UK is the highest it has ever been and many are concerned that it will widen even further. There are calls for the Bank Of England to step in and cool the housing market in London but it is difficult to see how this can be done without punishing the property market as a whole which would not be welcomed.

House building is still 40% below pre crisis levels and that is the driving force behind the rapid increase in house prices. Even during the building boom we were not producing enough homes for people to live in and it is clear that this very important component of the property market needs to be addressed before the market returns to some sort of normality. Only 110,000 new homes were built in 2013 which is well short of the 250,000 new homes that are required. The government has introduced new schemes such as the Build To Rent Fund which has been given £1bn by the government. The scheme has been set us to build new properties to rent in the private sector.

It is not just London that saw big price increases. Manchester also saw increases of 18% with an average price of £212,000. House prices across the north still remains below the pre-crisis levels and it is those parts of Britain that will not want the Bank of England to intervene just yet.