'Unaffordable' housing fears grow as prices hit record levels

Average house prices in the UK have now surpassed their January 2008 peak to reached a record high of £247,000, official figures showed yesterday.

The latest data from the Office for National Statistics – showing prices across the UK were 3.8 per cent higher than a year earlier in August – stoked more concerns over the impact of the Government's Help to Buy initiative on the market as the housing pressure group Shelter called for "an end to the era of unaffordable and rising house prices".

The buoyant market in London – where prices passed their pre-crash peak two years ago and surged 8.7 per cent year on year – is the main driver of the latest increase.

Excluding London and the South-east, UK prices went up by just 2.1 per cent in the 12 months to August, official statistics revealed.

England recorded the strongest annual growth at 4.1 per cent, followed by 1.1 per cent in Northern Ireland and 1 per cent in Wales, while Scotland saw prices fall by 0.7 per cent over the year.

Demand is set to increase still further other the months ahead following the introduction of the second stage of Help to Buy, which offers state-backed mortgages to people with deposits as low as 5 per cent. Royal Bank of Scotland, NatWest, Halifax and Bank of Scotland have started offering loans, while more lenders including HSBC, Barclays and Santander have signed up.

Activity in the market still remains well below the long run average with 62,000 mortgage approvals in August compared with roughly 100,000 a month in the decade leading up to the credit crunch, according to the Centre for Economics and Business Research.

But Shelter issued a report warning that even two-earner families risk being priced out of the market in London and called on the Government to stop promoting price rises and build 250,000 new homes a year.

A study found fewer than one in five London families would be able to own property by the age of 65 if house price inflation continued.

A spokesman for the charity said: "We need an end to the era of unaffordable and rising house prices, if families are to have a chance of owning a home of their own. It's time for an era of stable house prices – with politicians taking the lead – so that families on normal incomes can catch up."