London house prices rocket by eight per cent in a year

London house prices have soared by 8.1 per cent in a year to record highs, official figures reveal today.

The increase pushed the average cost of a home in June to £425,000. It was the biggest jump for two and a half years and sparked a warning of a “very real risk” of a property bubble in London. But as property prices rose across England, the Government said the housing market had “turned a corner” by showing renewed confidence.

London is racing ahead of other regions, with the West Midlands seeing the second biggest rise at 3.1 per cent, followed by the South-East at 2.9 per cent.

Communities Minister Brandon Lewis said rising property prices “do make people generally feel better” but admitted more homes needed to be built to help first-time buyers get on the housing ladder.

Economists warned of the danger of the property market overheating in London. Howard Archer, chief UK economist at IHS Global Insight, said: “The increase is already becoming a matter of some concern and they could rise even more because of the shortage of homes for sale.

“We could see double digit rises before too long. The risk of a property bubble developing in London is becoming very real.” While many homeowners will welcome the value of their property rising, the increases mean a growing number of Londoners are unable to buy their first home.

Shadow London minister Sadiq Khan said: “The Government and Mayor are failing to build the number of affordable homes London needs. The average age of a first-time buyer in London is already 38 and will get even higher as a result of today’s figures.”

Boris Johnson rejected the criticism, stressing that billions were being invested to increase the housing supply in London. A spokesman for the Mayor said: “Having built a record number of affordable homes already, the Mayor remains on track to deliver 100,000 affordable homes over two terms.” The Royal Institution of Chartered Surveyors report highlighted how widespread house price rises now are across London, rather than being focused largely on prosperous areas.

Communities Secretary Eric Pickles hailed figures showing 10,000 reservations for new-build homes under the Help-To-Buy equity loan scheme as showing the Government was creating a “sustainable” boost in UK housing.

Think-tank Centre for London say that as a proportion of household income, rental costs have gone up from 21 per cent in 2001/02 to 27 per cent in 2010/11. The proportion of people renting privately has increased from 18 per cent two years ago to 25 per cent.