London house prices have surged by nearly 10 per cent in the past year, driving up property values across England and Wales in spite of August’s interest rate rise, according to the FT house price index.

Prices levelled off over the summer, but have bounced back to rise by 0.5 per cent in September alone, led by London.

The sharp increase in seasonally adjusted house price inflation in early autumn was even stronger than a similar spurt last September and raised the annual rate of house price inflation in September to 6.1 per cent from 5.8 per cent in August.

The trend in the FT house price index matches other indicators in showing greater strength in recent months. The Royal Institution of Chartered Surveyors reported on Thursday that the balance of agents reporting rising prices was twice as high as its long-run average and beginning to spark a flurry of gazumping in London. Part of the reason for the rise has been a sharp reduction in the turnover of the housing stock since the 1970s and 1980s, according to Hometrack, the property website.

Low inflation coupled with high house prices means that people lower down on the housing ladder face borrowing constraints that last many years longer than in the era of high inflation, when mortgage repayments were soon eased by inflation whittling away the real value of mortgage debt.

People in expensive properties were also discouraged from moving by big stamp duty increases introduced by chancellor Gordon Brown between 1997 and 2000.

The FT index, which measures every property sold in England and Wales, shows London’s house prices grew by 9.5 per cent in the year to August, the month with the most up-to-date regional figures. House price inflation in the other regions of England and Wales, except the East Midlands, was between 4 and 6 per cent. In the East Midlands, it was lower, at 2.7 per cent.

Gary Styles, economics director of Acadametrics, the consultancy which compiles the FT index, said: “Monthly house price growth has strengthened further in September to 0.5 per cent following a relatively weak period in June and July.

“This strong performance has been led by London and supported by the South East and South West. Low rates of housing turnover and poor new housing supply have continued to drive southern housing prices throughout this year.”

But he warned that the strength of the market, particularly in London, was not necessarily a good reason for the Bank of England to raise interest rates in November, since many regions have seen little or no house price growth in the past three months.

Source:  Financial Times