Housing prices in the U.K. increased by 3.3 percent in the 12 months to July, but the rise in prices was driven almost exclusively by the continuing demand in London.
Home prices in London increased by 9.7 percent in the year, increasing faster than the U.K. average, according to new data from the Office of National Statistics. Excluding London, U.K. housing prices increased by only 0.8 percent in the year to July.
The disparity in prices make it difficult to develop a coherent policy, especially as fears grow of an impending housing bubble, analysts say.
"The difficulty is you have significant variations between London and the rest of the U.K., so it is impossible to control pricing by manipulating the entire mortgage market," Lucian Cook, head of U.K. residential research at Savills, told the Financial Times. "All it will achieve is to create further polarization between the equity-rich buyers and the debt-reliant market".
Even though the housing prices growth for the U.K. as a whole remains consistent, the housing price index is still below the peak in 2008.
The average U.K. home price stood at Â£245,000 in July, compared to Â£438,000 in London. Property firm Knight Frank reported London home prices in July were 60 percent higher than the city's post-crisis trough in 2009. The U.K. capital's housing market is greatly influenced by foreign capital, mainly from Hong Kong and China.
"Overseas investors into central London will continue to distort the local market, forcing prices up as they seek safe havens from recently volatile Middle East economies," Harry Clifton, managing director at Benthorp, told The Telegraph.
Prices paid by first-time buyers in July in the U.K. were 4 percent higher than July last year, the ONS reports. Existing home prices increased by 3 percent during the same time period.