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London house price gap largest since records began


London house prices are now twice as much as outside the capital. It will now cost an extra £183,000 on average to purchase a home inside London compared to the rest of the UK.

Whilst there’s always been a premium paid on house prices in the capital, the gap is now at its largest since detailed records began in 1978. When records first began, the difference was less than 10%, meaning the gulf has risen exponentially in the last three decades.

However, it’s generally accepted that this detachment from London and the rest of the UK happened in the early 2000s. This is because the gap dropped back to around 10% in the 1990s due to the housing slump, before rising again in the early 2000s before the banking crisis in 2007, which then accelerated the growing gap even further.

Twice the rate of inflation

The data from Nationwide, the UKs largest building society also suggested that house prices in London increased by 18% over the last 12 months, around twice the rate of inflation exhibited by the rest of the market.

Additionally, house princes in London are now 20% higher than the financial pre-crisis peak in 2007, making it one of only three areas in the UK which are now exhibiting higher house prices than before the crisis.

These other two areas are experiencing this because of the benefit from the London ‘heat-effect’ as they are both situated in close proximity to London. The two areas in question are the “Outer-Metropolitan” area around the capital, and the “Outer South East” region, also near the capital.

All other regions not fully recovered

Every other region in the UK remains yet to fully recover from the financial crisis in terms of house prices. The worst affected area is Northern Ireland, which is around 49% below their 2007 peak.

Economist Robert Gardner of Nationwide said that "London house prices were up 18pc, taking the price of a typical home in the capital to £362,699 – more than twice the level prevailing in the rest of the UK when London is excluded.

He continued to say “The gap between house prices in London and the rest of the UK is the widest it’s ever been, both in cash and percentage terms."

Tentative signs of moderation

The data from Nationwide did suggest there were some “tentative signs of moderation” as house prices increased by 0.4% in March, in comparison to 0.7% in February. However, it did concede that the average price of a home in the UK is now 9.5% higher than in March 2013.

Some experts in the industry commented that these signs of tentative moderation could be a good thing. Jonathan Samuels of Dragonfly Property Finance said: “While people are more confident about their jobs and the economy, and are more likely to get mortgage finance, it does feel that confidence is sometimes tipping into over-confidence. There is a real risk that many buyers in the current market will be exposed."

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