Sep 30, 2013

    Surge in London house prices fuels bubble fears

    BRITAIN'S house market is showing strong signs of recovery, largely on the back of surging prices in and around London, fuelling fears of a new property bubble, according to analysts.

    The average cost of a home in the capital surged by 10 per cent between July and this month, compared with the third quarter of last year, British bank and major mortgage provider Nationwide said on Friday.

    It added that the average London home, including flats as well as houses, now costs £331,338 (S$672,000) - 8 per cent higher than in 2007 or during the run-up to the global financial crisis that eventually led to prices crashing.

    "The acceleration in house prices...reported by the Nationwide will fuel concern that we could be on our way to a new housing bubble," said Mr Howard Archer, chief UK economist at IHS Global Insight research group.

    "On top of this, the Bank of England has indicated that interest rates are unlikely to rise before mid-2016, which seems likely to give many people greater confidence in their ability to purchase a house," he added.

    The government launched a new programme called "Help To Buy" earlier this year, offering interest-free loans for a set time period to help buyers with only a 5 per cent deposit to purchase newly built properties.

    The scheme will be extended in January to offer mortgage guarantees for new and existing homes worth up to £600,000.

    People will not be allowed to benefit from the scheme if they intend to own more than one property.

    The current state of the housing market has meanwhile led to splits in the governing Conservative-Liberal Democrat coalition.

    Outspoken Lib Dem Business Secretary Vince Cable has warned that Help To Buy could fuel a new bubble.

    However, Conservative MP George Osborne, who as finance minister holds a more senior role in government, maintains that the scheme is needed to help homebuyers struggling to find sufficient deposits.

    Britain's housing market has been bolstered in part by the country's economic recovery in the first half of the year and on keen demand from cash-rich foreign buyers, particularly for investment property in London.

    Analysts also blame a shortage of affordable property for the current boost in prices.