An average home in London now sells for more than £400,000 for the first time, with prices in the three months to June up by 25.8 per cent on a year earlier, according to the Nationwide.
The national average house price rose 11.8 per cent to £188,903, the biggest rise since January 2005, reports The Telegraph.
However, it was in the capital that posted the most eye catching rises, with prices in the capital now one-third higher than their peak before the 2008 financial crisis.
All regions recorded rises for the fourth quarter in a row but the increase posted in London, the largest since 1987, shows that it is still far the most buoyant part of the country.
If London is excluded from the figures, prices are still 0.4 per cent below the pre-crisis peak of 2007 and the national average house price is 1 per cent higher than its pre-crisis high. The number of transactions outside the capital is below its historic average.
Nationwide’s House Price Index passed its pre-crisis level for the first time last month.
Robert Gardner, Nationwide’s chief economist, said: “The price of a typical property in London reached the £400,000 mark for the first time, with prices in the capital now around 30 per cent above their 2007 highs and more than twice the level prevailing in the rest of the UK.”
Nationwide think that new controls on mortgage lending imposed by the Bank of England in June were unlikely to have a significant impact “in the near term”.
The Bank’s Financial Policy Committee voted to limit the proportion of lending at or above 4.5 times borrowers’ income to no more than 15 per cent of new loans and to introduce a stress test to ensure that borrowers can afford a three percentage point increase in rates.
Mr Gardner said: “Most major lenders are already using a stress rate in their affordability calculation that is broadly consistent with the new stress test. Similarly, the proportion of house purchase loans at or above 4.5 times borrowers’ income is currently some way below the 15 per cent cap.
“However, these policy measures, along with previous actions, such as the introduction of Mortgage Market Review (MMR) measures [tighter affordability checks], should help to limit the risk of house prices becoming detached from earnings without derailing the recovery in the wider housing market.”
He added that mortgage approvals were already slowing down, and in May were down 19 per cent compared to January. Longer-term market interest rates were already rising because of speculation that the Bank of England will raise the base rate later this year or early next, Mr Gardner said.