London house prices soar 26 per cent in a year

London house prices soar 26 per cent in a year

LONDON - London house prices soared 26 per cent over the past year in the biggest annual jump since 1987 as the economic recovery and record-low interest rates stoked a boom in one of the world's most expensive property markets.

The rise, shown in a Nationwide survey on Wednesday, is expected to put pressure on the Bank of England to bring forward its plans to raise interest rates, a move that would be the first tightening by a major central bank since the financial crisis hit.

Across Britain, house prices rose at their fastest rate in over nine years, Nationwide said, while the average London property hit a record 400,000 pounds, or $681,000 for a dollar buyer forced to grapple with rocketing prices and the strongest pound in nearly six years.

Foreign money has poured into London property, seen as an attractive bet by everyone from Russian oligarchs to US technology titans, prompting a domestic scramble for homes that many locals cannot afford without potentially crippling debt.

Bank of England Governor Mark Carney has warned the housing market poses the biggest domestic risk to financial stability and signalled that Britain could be the first major Western economy to tighten monetary policy since the 2008 crisis.

He has also stressed that monetary policy will not be driven by house prices in its capital - and that the central bank does not target house prices or seek to use higher interest rates as its main tool for curbing rising household debt,

But the latest rises raise questions about how long this position can stand.

"The data signal a rapidly growing economy, one in which house prices are rising very rapidly, employment is rising very rapidly... and interest rates right now are at a record low," said Rob Wood, chief UK economist at Berenberg.

"I think those sort of indicators mean that it would be sensible to begin the process of gradually withdrawing the exceptional monetary stimulus this year."

In the three months to June, London house prices were 25.8 per cent higher than a year earlier - an annual increase not seen since 1987, a year best remembered in financial circles for the Black Monday stock market crash.

Prices in the British capital are now around 30 per cent above their pre-crisis highs and more than twice the level in the rest of Britain, said Robert Gardner, chief economist at mortgage lender Nationwide which collated the data.

Countrywide, house prices rose 1.0 per cent in June after a 0.7 per cent rise in May, taking the annual rate of increase to 11.8 per cent - the biggest since January 2005, according to Nationwide.

That has helped fuel construction. Separate data on Wednesday showed activity in that sector grew in June at its fastest annual pace in four months. Shares in Britain's biggest housebuilders including Barratt Development, Persimmon , Berkeley Group and Taylor Wimpey are up between 12 and 20 per cent in the last 12 months.

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