London house prices rose at an "unsustainable rate" in October as demand from overseas investors added pressure to a market with an already small supply of properties, according to property website Rightmove.
Values in the UK capital surged 10.2%, or £50,484 from the previous month, to an average £544,232 sterling, the property-website operator said in a report today.
Estate agents in inner London reported a “buying frenzy” reducing the available stock to nearly nothing, it said.
“London is a world city where overseas investors see real estate as a safe asset at a time when safe assets are increasingly scarce,” said Miles Shipside, Rightmove director and housing-market analyst.
The surge in London prices partly reflects buyers returning to the market after the summer slowdown, according to Rightmove, adding there is a “long-standing imbalance” between supply and demand. A 15% increase in sellers in October followed a 12% drop in September.
While the increase in London values in October follows declines of 2.8% and 1.5% in the previous two months, Rightmove said such a gain is “unsustainable.”
In comparison, there is no risk of a property bubble outside of London, Rightmove said. House prices in England and Wales, excluding London, rose an average 1.4% in October from September and were up 0.2% from a year earlier.
In two of the 10 regions tracked by Rightmove, prices fell in October from September, while five recorded year-on-year declines, it said.
Demand for property has been boosted by a UK government programme to help people buy a home with a deposit of as little as 5%. At the same time, the Bank of England has said it will not consider raising its benchmark interest rate from a record-low 0.5% at least until unemployment falls to 7% from 7.7% currently.
Bank of England officials have said mortgage borrowers should ensure they can still afford repayments when borrowing costs rise. Policy maker Martin Weale said last week he was concerned about recent signs of “buoyancy” in the property market.
“People who are taking on mortgage debt do need to be sure that they can afford to look after it even if interest rates return to what we regard as more normal levels,” Weale said.
According to the Rightmove report, average prices in England and Wales climbed 2.8% this month to £252,418, rebounding from a 1.5% decline in September. Values rose 3.8% from a year earlier.
