Office of National Statistics (ONS) data shows house price inflation reached 10.5% in May the highest level for four years.
The year on year rises in UK house prices of 10.5% for June is higher than the 9.9% for the previous month driven higher by London, where prices are up by 20.1%.
Removing figures for London and the South East, UK house prices are up a more modest 6.4% year on year and the ONS say the average house price is now £262,000.
These figures compare to the Nationwide showing UK house prices rising by 11.8% for the year and the Halifax 8.8% rise.
Warnings of property bubble
The Bank of England’s governor Mark Carney has warned a property bubble in the medium term is the biggest risk to economic recovery.
This is the main reason why the Financial Policy Committee (FPC) introduced measures to limit the number of mortgages where the multiple of income exceeded 4.5 to no more than 15% of mortgage approvals.
He said a large number of highly indebted households could tip the economy back into recession. British people pay their mortgages with very few defaults and high multiples mean they make savings elsewhere, reducing spending in the economy.
Help with the deposit for a new home can come from family members as the equity release buyer can access cash using a lifetime mortgage and give to a child or grandchild.
The risks are rising as the ONS figures show the average house price paid by first time buyers is now £202,000. House price inflation for first time buyers is 11.3%, higher than home movers.
Home movers experienced lower inflation of 10.1% over the year with an average house price of £301,000 compared to London prices of £492,000.
House prices higher than pay rise
The Office for Budget Responsibility (OBR) have said that house prices will outstrip the rise in pay for the next five years, based on a new model for calculations.
With only moderate increase in the supply of new-build properties, house prices will consistently increase above the rise in annual earnings.
One advantage of rising house prices for homeowners is remortgage buyers can now release capital for home improvements.
Only a high level of house building would be able to prevent a rise in loan-to-income levels. This would mean homeowners will spend more of their income on mortgage repayments as a percentage of their income.
What are your next steps?
Speak to our LCM mortgage advisers if you are planning to move home, buying your first home, remortgaging your existing home to a new cost effective mortgage deal or are a buy-to-let investor.
Start with a free mortgage quote or call us and we can take your details. Learn more by using the mortgage cost calculators, equity release calculator and property value tracker chart.
For equity release buyers our London City Mortgage brokers can recommend lifetime mortgages allowing you to receive cash from your property to improve your quality of life or reduce inheritance tax owed by your beneficiaries.
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