London house prices are up 10pc in a year. So why does the chancellor say there’s no bubble?
CHANCELLOR George Osborne has rejected suggestions that his policies are creating a housing bubble, even as new evidence emerges that prices are soaring in London.
In an interview yesterday, Osborne said: “I don’t see the evidence of some housing boom out there. What I see is not only house prices 25 per cent lower than they were, but mortgage approvals half what they were, transactions two thirds of what they were. In other words, we are a long way from a housing boom.”
However, according to shocking figures released by the Office for National Statistics (ONS), London house prices skyrocketed in the year to July, up by 9.7 per cent, nearly ten times as fast as wages.
Capital Economics estimates that a typical house in London now costs 12 times the capital’s average income – roughly £34,000 – adding to fears that property is fast becoming unaffordable for many.
IHS Global Insight’s chief UK economist Howard Archer said: “There is a mounting danger that house prices could really take off further out, especially as a shortage of new properties for sale could be a significant factor in some areas.”
He added: “Should the housing market continue to rapidly pick up over the coming months, the case for limiting or even eventually pulling the plug on the Help to Buy mortgage guarantee scheme that will start at the beginning of 2014 will look ever more compelling.”
Price increases in London outstripped the rest of the country by some distance this July:
even in the south east (excluding London) prices only increased by 2.6 per cent in the same period. In the north east and north west, house prices have actually declined over the last year, down by 1.3 and 0.7 per cent respectively.
In fact, the average house in London, priced at £438,00, is now worth three times as much as equivalent properties in the north east of England, priced at only £144,000. London prices are now 17.3 per cent higher than their previous boom-time peak in 2008.
Driven by the enormous climb in the capital’s property prices, English house prices overall are now back to levels last seen in 2008, though many regions are still at a lower level.
ONS data on wages shows that weekly earnings only rose by one per cent in the UK during the year to July, making home ownership a distant prospect for many people.
Even industry professionals have recently voiced concerns about a housing boom, with the Royal Institution of Chartered Surveyors suggesting that the government should act to limit house price rises.
The first part of the Help to Buy scheme began in April this year, but currently only applies to first-time buyers and newly built houses. The vastly expanded programme, which begins in January 2014, will apply to any home sold for less than £600,000 and will no longer be restricted to first time buyers.