House prices across the UK soared by 11.6 per cent in the last year, the biggest annual rise for almost a decade. Britain’s booming housing market shows little sign of cooling, with the average property hitting a new all-time high of £188,903.

In London prices are 25.8 per cent higher than a year go, the Nationwide reported as ministers prepare emergency plans to encourage house building in a bid to prevent the property market reaching boiling point.

The latest house price index from Nationwide reveals that prices in June were 11.8 per cent higher than the same month last year.

The last time soared by the same rate was in the year to January 2005, two years before the financial crash. Between May and June prices were up 1 per cent, pushing average prices up £2,391 above a previous peak in cash terms which had been recorded just one month earlier, in May.

In London, prices rocketed by 25.8 per cent in a year, the biggest increase in the capital since 1987.
It means the average house in London now costs more than £400,000 for the first time, hitting £400,404 in June. 

It means prices in London now 30 per cent above their 2007 peak and the gap between values in the capital and the rest of the UK is ‘the widest it’s ever been’, according to Nationwide’s report.

However, big gains are not confined to London and the south east. In Southern Scotland, which includes Ayrshire and the Borders, prices are up by 14 per cent on the previous year, as are prices in Belfast in Northern Ireland. In South Wales (West), which includes the Vale of Glamorgan, Bridgend and Swansea, house prices have seen a 12 per cent year-on-year jump.

After London, Cambridge was named as the top-performing city for the housing market. Prices in Cambridge have surged by 20per cent over the last year to reach £419,187 typically. 

St Albans was the third strongest-performing city, with values lifting by 18 per cent annually to reach £451,800 on average. Newcastle was named as the worst-performing city, with a 3 per cent annual uplift taking prices there to £181,473 typically.

Across the UK, all regions recorded annual price gains for the fourth quarter in a row, with the largest being in London and the smallest in Scotland, where values have risen by 5.4per cent annually to reach £141,872 on average.

In Wales, property prices are up by 9.3per cent on a year ago, now standing at £145,812 typically, while in Northern Ireland, where the housing market is still recovering from some sharp falls seen in the wake of the financial crisis, values have risen by 8.4per cent annually to reach around £117,150. Prices in Northern Ireland are still around half the level they were at their peak.

Prices lifted annually by 16.4per cent in the Outer Metropolitan commuter belt area, by 14.0per cent in the Outer South East, by 9.8per cent in the South West, by 9.5per cent in East Anglia, by 8.3per cent in the East Midlands, by 8.2per cent in the West Midlands, by 8.1per cent in the North, by 7.1per cent in the North West and by 7.0per cent in Yorkshire and Humberside.

Robert Gardner, Nationwide’s chief economist, said house prices surpassed their 2007 peak levels in the second quarter of this year, ‘just as UK economic output is likely to have surpassed the high water mark reached before the financial crisis’.

He said the latest figures show there is still ‘significant variation’ in the performance of the housing market across the UK. Across the country as a whole, prices are just under 1per cent above their pre-financial crisis peak, but when London is taken out of the equation they are 0.4per cent below this previous high. Prices in southern regions are now above their 2007 peaks, while those outside the South are still below this level.

Last week, the Bank of England moved to put curbs on riskier mortgage lending by announcing that loans of 4.5 times a borrower’s income or higher should account for no more than 15per cent of new mortgages issued by lenders.

The Bank also said that lenders should apply a new ‘stress test’ ensuring that borrowers can keep up their mortgage repayments in the event of a rise of up to 3per cent in interest rates over the first five years of the loan.

There have already been some signs of a slight slowdown in the housing market since the launch of stricter mortgage lending rules under the Mortgage Market Review (MMR) at the end of April, which mean mortgage applicants must be quizzed in more detail about their borrowing habits.

Experts have said it is too soon to know whether the impact of these new rules will be temporary, as they bed in, or more longer-lasting. It has also been said that a continued shortage of properties on the market is still helping to push prices upwards.

Mr Gardner said that the Bank’s new measures are ‘unlikely to have a significant impact on housing transactions or the pace of price growth in the near term’. He continued: ‘Most major lenders are already using a stress rate in their affordability calculation that is broadly consistent with the new stress test.

‘Similarly, the proportion of house purchase loans at or above 4.5 times borrowers’ income is currently some way below the 15per cent cap.’

Mr Gardner said that the Bank’s new policy measures, alongside the MMR rules, should help to limit the risk of house prices becoming detached from earnings, while mounting speculation over possible interest rate rises may also dampen housing market activity in the months ahead.