AVERAGE London house prices have breached the half a million pounds level for the first time, a leading website announced this morning. The news, which will delight some homeowners but trigger despair for homebuyers, is fuelling fears of another bubble caused by easy money and insufficient house building.
The latest figures follow a warning yesterday from Sir Mervyn King, the outgoing Bank of England chief, that government guarantees for mortgages pose a danger to the economy.
Firing a parting shot at George Osborne, the governor fears the Treasury could land itself in an expensive hole if it puts taxpayers’ money on the line to back risky borrowers for too long. And the Help to Buy scheme could already be pumping up a new bubble – asking prices in London have soared 8.6 per cent in the last year, while the country as a whole has seen a jump of 2.5 per cent, according to Rightmove. “There is no place in the long run for a scheme of this kind. This scheme is a little too close for comfort to a general scheme to guarantee mortgages,” King said on Sky News of Help to Buy, which will guarantee a chunk of low deposit mortgages.
“We do not want what the US have which is a government guaranteed mortgage market and they are desperately trying to find a way out of that position so we mustn’t let this scheme turn into a permanent scheme.”
However chief secretary to the Treasury Danny Alexander said there was nothing to worry about. “Help to Buy is about helping those who can afford to make the repayments on their mortgage but don’t have enough money to scrape together the large deposits that banks are requiring,” he said. “This scheme is limited for three years, we’ve given a lock to the Bank of England, we want the new Financial Policy Committee to take a view on this scheme before it is extended. This has never been intended to be a permanent new feature, it is temporary.”
Rightmove figures show the housing market already shows some signs of a boom, fuelled by easy money boosting demand and a lack of house building holding back supply.
The average London property to go up for sale now has an asking price of £509,870. That compares with an average of £469,314 a year ago and £493,635 in April. Nationally, the average price stands at less than half the London level, at £249,841. The rest of the UK is enjoying a more modest rise in prices, up 2.5 per cent on the year.
“The pressure cooker of the London market has been building up a head of steam since the beginning of the year,” said Rightmove’s Miles Shipside. “With two-year fixed borrowing costs a touch over two per cent, putting a higher offer in on a property costs little extra.”