Government schemes blamed as UK house prices rise 2.5%

The average cost of buying a house in London has exceeded £0.5 million for the first time ever, prompting fears that another property bubble could be looming as house building continues to drop, according to the latest Rightmove House Price Index.

On average, residential properties in the capital rose by 8.6 per cent to reach £509,870, a huge increase on the figure of £469,314 seen a year ago.

Prices across the country saw a less severe increase, with the average UK property demanding £249,841 to be bought.

The figure marks a 2.5 per cent increase on last year’s total, though this is less than half of the totals recorded for London.

Monthly, house sellers have driven up prices by 2.1 per cent when compared with April’s totals, representing the fifth consecutive month in which property values have risen, and marking the strongest price start to a year since 2004.

Prices in the North of the country showed a 1 per cent increase, hitting an average of £151,729, while those in the East Midlands showed a small decline of 0.6 per cent, rendering the region’s average price as £166,991.

The news follows a warning from Sir Mervyn King, outgoing Governor of the Bank of England, that Government-backed schemes have not done enough to alleviate the crisis in the housing market.

King particularly attacked Help To Buy, a scheme which is due to run from January 2014 until 2017 and will guarantee up to 15 per cent of a residential mortgage secured on a property worth up to £600,000.

Speaking to Sky News, King said: “I'm sure that there is no place in the long run for a scheme of this kind. This scheme is a little too close for comfort to a general scheme to guarantee mortgages.

"We had a very healthy mortgage market with competing lenders attracting borrowers before the crisis, and we need to get back to that healthy mortgage market.”

Reflecting on the current situation in America, he added: "We do not want what the United States have, which is a government-guaranteed mortgage market, and they are desperately trying to find a way out of that position.

"So, we mustn't let this scheme turn into a permanent scheme. Now when is the right time to terminate it will depend on economic conditions at the time."

Responding to King’s comments, a spokesman from the Treasury said: “The Mortgage Guarantee scheme will provide much needed help for people who can't afford a big deposit to get a mortgage.

"This is a good use of the Government's fiscal credibility that will support home buyers and home building.

"The scheme will run for three years from January 2014. A future Government would need the agreement of the Bank of England to extend it."