London house prices shot up by a further 5 per cent in the first three months of 2014, prompting new fears of a property bubble in the capital.
Prices in London are up 18 per cent year on year in the first quarter, the fastest annual growth rate since 2003, according to the latest survey by Nationwide.
The increase takes the average London house price to £362,699. Nationwide said that this was more than double the price of an average home in the rest of the country, a record premium for prices in the capital.
Across the UK there was a slight moderation in house price growth in March, as the rate of inflation eased to 0.4 per cent, down from 0.7 per cent in February. But economists said that London was a growing cause for concern.
Matthew Pointon of Capital Economics said: "London is looking far more like a bubble." Susan Emmett, director of residential research at the estate agency Savills, said: "We are wondering whether this level of price growth in London is sustainable. What we think is going to happen is people will start leaving London in search of better value."
The Nationwide data showed that the average first-time buyer house price-to-income ratio in London reached a record high of eight times in the first quarter of 2014.
Calls have been made for the Bank of England to take action to cool the capital's market, but Threadneedle Street has sought to play down expectations of what powers the regulator has. Officials at the Bank point out that foreign cash buyers have been driving the London market, reducing the effectiveness of its array of macroprudential tools, such as placing tighter loan-to-value limits on bank mortgage lending.
Nationwide said that house prices across Britain were 9.5 per cent higher year on year in March. But analysts said this could ease in the coming months.
"The base effects which had been flattering the annual comparison will now start dropping out," said Mr Pointon. "If prices continue to grow at 0.4 per cent month on month for the rest of the year, prices for 2014 as a whole will be up by just over 6 per cent."
The latest Markit/Cips snapshot of the construction sector showed activity growing for the 11th consecutive month in March, with residential building the most rapidly expanding sector.Reuse content