House prices rise with London leading the way

The Office for National Statistics has reported that house prices rose 0.3 per cent month-on-month in July, following increases of 0.4 per cent for both June and May.

London's house prices are strong - up 9.7 per cent year-on-year in July - which has inflated the annual rate of increase to 3.3 per cent in July from 3.1 per cent in June and 2.9 per cent in May.

Excluding London and the South East, house prices were up 0.8 per cent year-on-year in July.

House prices look set to rise steadily for the rest of 2013 and 2014 but remain discernably below pre-crisis level.

Howard Archer, chief UK and European economist for IHS Global Insight comments:

We are currently some way off any new housing bubble developing... Nevertheless, with housing market activity currently gaining appreciable momentum and new stimulus measures due to kick in at the start of 2014 (the “Help to Buy” mortgage guarantee scheme), it is something that policymakers need to keep a very close eye on.

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, even if the government may find this politically difficult to do.

We expect house prices to rise by 2-3% over the final months of 2013 and to then grow by around 7% in 2014.

The Halifax and Nationwide have reported solid increases in house prices for August with the latter reporting a rise in August of 0.6 per cent, following a 0.9 per cent gain in July. The year-on-year increase in prices did, however, dip in August to 3.5 per cent after a 35-month high of 3.9 per cent in July - up from 1.9 per cent in June.