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London and the South East skew house prices

London and the South East skew house prices

Category: Mortgages

Updated: 15/09/2014
First Published: 15/09/2014

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House prices only ever seem to be on the rise, and in fact, average house prices across the whole of England and Wales have now reached £274,302 - an annual price increase of 10.7%. But according to the latest England & Wales House Price Index from LSL Property Services, it's the housing hotbeds of London and the South East that are causing national averages to soar.

While London property prices saw an annual growth rate of 20.6% in August - the highest growth recorded since LSL began their house price index in 2000 - the housing market in the rest of the UK is showing a much more modest recovery. When Greater London and the South East are discounted, the average house price in the rest of the country stands at just £185,496 – a difference of £88,806. This is a rise of just 4.3% year-on-year.

This price gap marks the biggest contrast in house prices since 1995, and it demonstrates the misleading nature of the national housing market. As Richard Sexton, director of e.surv, part of LSL Property Services, points out: "What's happening in London may be eye-catching, but it is akin to looking through a kaleidoscope… peeling back the regional layers gives a much more informed view of the core reality of the current housing market."

So, why are prices in London reaching for the skies? Well, it seems as though the age-old problem of supply outstripping demand is a primary motivator. Thanks to a combination of the economy slowly improving, and demand from renters and overseas investors increasing, the lack of available housing is becoming ever more apparent.

Meanwhile, house price growth in the rest of the country is showing signs of cooling, with monthly price growth slowing in all regions bar the South East, East Anglia and London. As a result, when the regions are broken down, the housing market starts look a lot more subdued, with the recovery being far more moderate than headline figures suggest.

For this reason, schemes such as Help to Buy are still to play an important part in getting people onto the housing ladder in the near-future. And it seems as though the scheme is working. According to the latest Mortgage Monitor from e.surv, the mortgage guarantee scheme and equity loan scheme accounted for 6.2% of total mortgage lending in the East of England, followed by 3.8% the North West and 3.7% in Scotland.

And with 28% of mortgage approvals in the North West and Yorkshire being given to borrowers with a deposit of 15% or less, the guarantees and loans provided by the Government's schemes are proving to be a "crucial cog" in the housing market's recovery. Richard Sexton comments: "Areas like the North West, Yorkshire & Humber have fewer cash-rich borrowers and are more reliant on the Government scheme. They are in a fragile balance of recovery, and prematurely removing the scheme could set back their progress."

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