London hits bubble territory with 15% annual growth

House prices continue to accelerate in London with a 14.9% rise over the past 12 months, sparking renewed fears of a bubble in the capital.

The average London property now costs £345,186, up 14% from its 2007 peak, according to latest figures from Nationwide.

Across the UK, prices rose 7.1%, with an increase of 2.7% in the fourth quarter of 2013.

Nationwide chief economist Robert Gardner warned that house price growth has been outstripping average earnings growth since the middle of 2013. “The risk is that if demand continues to run ahead of supply in the quarters ahead, affordability may become stretched."

Alexander Gosling, director of online estate agents Housesimple.co.uk, said the capital is heading into dangerous territory. "London continues to stand head and shoulders above the rest of the UK.

“Property market bulls insist this is no bubble, but such double-digit growth is clearly unsustainable. When interest rates rise those buying in haste and beyond their means now may repent at leisure later."

Matthew Turner, director of the UK buying agents Astute Property Search, said: "Growth of 14.9% in the capital over the course of 2013 is both exceptional and unnerving.

"London has always been a law unto itself but this is a rate of growth that surely cannot, and probably should not, continue."

Jeremy Duncombe, director of Legal & General Mortgage Club, said buyers must protect themselves against future interest rate hikes.

"House prices look set to rise in 2014 in a similar pattern to how they grew during the latter part of 2013.

"Now that confidence is once again returning to the market it is a good time for homeowners to consider re-mortgaging to take advantage of low rates, especially as interest rates are likely to rise in the short to medium term as the UK economy continues to grow."