House Prices Rise 1% But Are 7% Below Peak

House price growth accelerated in October amid continuing fears of a price bubble but the average cost of a home is still 7% below the record level measured in 2007.

The latest Nationwide House Price Index charted a 1% increase over the month following a 0.9% increase in September - with London and the South East continuing to drive the growth which has now lasted for six consecutive months on a UK-wide basis.

Nationwide said it meant that national annual price growth rose to 5.8% from 5% the previous month - the strongest increase seen since July 2010 - raised the cost of the average property to £173,678.

Commenting on the figures, the lender's chief economist Robert Gardner said: "The UK housing market appears to be following the more resilient upward trend evident in the wider economy in recent quarters.

"The ability and willingness of potential buyers to transact has been steadily increasing.

There are concerns of unsustainable price increases because of low supply

"The ability to buy has been supported by continued gains in employment and policy measures such as the Help to Buy and Funding for Lending schemes, which have improved the availability and lowered the cost of credit.

"Mortgage rates are close to all time lows. The willingness of potential buyers to step into the market has also been increasing."

But he warned: "House price growth has accelerated as buyer demand has picked up more quickly than the supply of new homes.

"The risk is that if demand continues to strengthen while the supply of property remains constrained affordability could become stretched."

The launch of a new phase of the Government's flagship Help to Buy scheme offering state-backed mortgages to people with deposits as low as 5% was brought forward to this month, following expectations that the initiative would not start until January 2014.

Critics argue that rather than launching initiatives to unleash more aspiring buyers into the market, which will contribute to the upward pressure on house prices, the Government should instead be concentrating efforts on trying to address the lack of housing supply.

Ministers have consistently dismissed talk of price bubbles, suggesting the market recovery is only just beginning outside of London and the South East.

The property website Rightmove recently measured a 10% jump in house prices in the capital during October alone - prompting further debate on whether a boom and bust cycle loomed.

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