House prices have now surpassed their 2007 peak and are continuing to rise at double-digit annual rates, according to Nationwide. The building society said prices in June were up 11.8 per cent on a year earlier, accelerating from the 11.1 per cent annual increase registered in May.
Nationally, the average house price rose to £188,903, which is above the previous peak reached in 2007.
The increases were led by London, where values were up 25.8 per cent year on year in the first quarter. The average house price in the capital reached £400,000 for the first time.
However, Robert Gardner, Nationwide’s chief economist, predicted that such rapid price gains in the capital would not continue. “The annual pace of growth will probably start to slow in the quarters ahead, given anecdotal evidence from surveyors and estate agents that activity may be starting to moderate,” he said.
Mr Gardner said expectations that the Bank of England would soon lift interest rates from their record lows could dampen the market in coming months.
The Bank of England’s Financial Policy Committee took action last week to ration the proportion of mortgages with high loan to income ratios that banks and building societies can make. It also tightened up the stress tests that lenders must impose on borrowers.
Construction activity also hit a four-month high in June, outstripping analysts’ expectations and sending sterling up sharply against the dollar. The latest survey snapshot of the building sector by Markit/Cips gave an index reading of 62.6, up from 60 in May and the highest result since February.
Economists had predicted a slight fall in the index, and the pound instantly rose a third of a cent to $1.7168.
The survey showed that house building was the fastest growing sector, with the biggest pick-up in activity since January. There was also strong growth in commercial real estate development, although growth in civil engineering work slowed. Employment in the sector also rose at its fastest rate since the survey began in 1997.
Tim Moore of Markit said the data “represents a remarkable yardstick of progress as the sector looks to recover the ground lost over the past seven years”. He added that the reading suggested construction grew by 1 per cent in the second quarter of the year, following 1.5 per cent growth in the first quarter. Over the past year construction output is now 6.7 per cent higher, according to the Office for National Statistics. But despite the bounce back, output still remains 10 per cent down on its peak in the first quarter of 2008.