LONDON - 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 September compared with the third quarter of 2012, 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$670,000) - 8.0 per cent higher than in 2007 or during the run-up to the global financial crisis that eventually led to prices crashing.
Across Britain, the average price of a home stands at £170,918 after gaining 4.3 per cent in the third quarter on an annual basis, Nationwide said.
"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 Howard Archer, chief UK economist at IHS Global Insight research group.
"Housing market activity is now really stepping up a gear, supported by markedly strengthening consumer confidence and elevated employment, and fuelled by" government initiatives, Archer said.
"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 5.0-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.