National average house price is 0.9% up on 2008 peak

Pound coins, stacked, with monopoly-style houses on them

The Office for National Statistics (ONS) has released its house price index for July 2013. The report shows that house prices in England have risen 0.9% above the previous peak in January 2008.

As we frequently state in our house price index reports, high prices in the capital skew the figures for England (and indeed the UK as a whole). Prices in London are now 9.7% higher than at the same time last year, whereas other areas of England show a much more modest increase (less than 3% for all other areas), and, in some areas, an actual decrease can be seen.

In the North East, prices are still 2.3% lower than during the same period last year, showing that there are still some areas where bargains can be found!

There is concern amongst economists that a combination of the Funding for Lending Scheme (FLS) and the Help to Buy scheme may be fuelling further house price increases.

It is broadly recognised that the FLS has helped to reduce the cost of borrowing by encouraging mortgage lenders to reduce their rates. The FLS was started just over a year ago.

The Help to Buy scheme is still in its infancy, and is due to be extended further in January 2014 to include all properties, rather than just new build property as it stands today. The scheme allows borrowers to put down a deposit of just 5%. An extension of the scheme will undoubtedly encourage many more buyers to market, thus increasing demand for a scant resource, and is likely to inflate prices even further.

Economists are worried that a combination of these two factors will fuel a housing bubble, pricing many out of the housing market. However, the chief secretary to the Treasury, Danny Alexander, said over the weekend that the country is ‘a thousand miles away from a housing bubble’.

The Bank of England’s Financial Policy Committee (FPC) will meet today and may discuss the dangers of a housing bubble.

The main concern is that if we do enter a housing bubble, then this could put pressure on the stability of the economy, and lenders may have to increase their rates to counteract this.

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.