London house prices surge past 2007 record high

• Asking prices in London jump 6.5% to £461,157
• FSA report to outline reform plans for mortgage lenders

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* Zoe Wood
* guardian.co.uk, Monday 19 October 2009
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Reseach by property website Rightmove revealed that asking prices for homes in the capital had jumped 6.5% compared with last year. Photograph: Dan Kitwood/Getty

Property asking prices in London have broken through the record high set in November 2007 as the drought of homes for sale around the country continues to distort the market. New research out today shows that the average asking price in London jumped 6.5% to £461,157 in the four weeks to 10 October, sailing through the high of £412,731 set in November two years ago.

The survey by the property website Rightmove also shows that asking prices in England and Wales are now higher than a year ago, after climbing 2.8% in the past month. However, any optimism about the speed of any housing market recovery is expected to be dampened by today's report from the Financial Services Authority, which will outline plans for reform of the mortgage lending industry.

The watchdog is expected to recommend stricter credit checks on applicants, as well as an end to self-certification deals. Some commentators believe such a clampdown could restrict house price growth for a generation.

In its survey, Rightmove said a paucity of homes coming on to the market fuelled a £6,188 rise in asking prices in England and Wales. The gain was the largest since February last year and means the average property price stood at £230,184, which is 0.2% more than during the same period of 2008. The company said it was the first time the survey had detected a year-on-year increase since June 2008.

The group warned that there were still some fundamental weaknesses within the market, with the march upwards of asking prices, particularly in London, attributed to buyers jockeying for position amid "severe stock shortages". Estate agents in the capital have also reported a surge of interest in multimillion-pound homes as City bankers once again decide how to spend their bonuses.

Miles Shipside, commercial director of Rightmove, said it was a "highly unusual" situation given the recession, adding: "Some agents are virtually 'sold out' and are reporting available stock levels in single figures. In this sort of market sellers quite naturally will be tempted to test buyer appetite at a higher figure."

Rightmove said 95,000 new homes were put up for sale in England and Wales during the month, 36% less than in the same month of 2007. All areas saw price increases during the month, except the north and East Anglia, where prices fell by 2.5%. London saw the biggest monthly gain of 6.5%, followed by Yorkshire and Humberside at 5.3% and the south-east at 3%. Average asking prices are now higher in London, the south-east, West Midlands, north-west and Wales than a year ago.

The number of mortgage products available has collapsed from 15,000 to 1,500 in just two years, according to Fathom Consulting, with mortgage approvals also down sharply. Many first-time buyers are frozen out of the market due to the hefty deposits and the industry fears that the proposals outlined in today's FSA mortgage market review could further affect demand.

It is understood, however, that the FSA has rowed back from imposing caps on loan-to-value or loan-to-income ratios and a ban on 100% mortgages, opting instead to crack down on risky lending, for example by forcing non-bank lenders to hold on to 5-10% of the loans they originate.

The FSA also wants lenders to ensure clients are more rigorously credit checked so they are not extended in debt they cannot afford. Buy-to-let mortgages are also expected to come under its supervision.

"House prices in the UK are affected by demand and a lack of supply, more so than elsewhere, and house-price bubbles are not caused by lax lending," said Robert Sinclair, director of the Association of Mortgage Intermediaries. "The regulatory structure needs to balance the need to protect consumers from unaffordable debt with their desire to buy a home of their own."