No UK property bubble says the Banks of England, yet

There is no immediate danger of a property bubble in the UK, according to the Bank of England’s Financial Policy Committee, but it will be keeping a watchful eye on the residential real estate market.

There have been a lot of concerns voiced recently that prices in some parts of the country, most notably London and the South East, are rising too fast.

But the FPC said that while the UK’s housing recovery ‘appeared to have gained momentum and to be broadening’ it is under control based on gauges such as level of activity, debt costs and prices compared with incomes.

‘In view of that, the Committee judged that it should closely monitor developments in the housing market and banks' underwriting standards,’ it said in a statement after its latest meeting, adding that it will be vigilant to potential emerging vulnerabilities.

House prices have generally risen by around 3.3% nationally in the last year but in London the rise is much higher, at around 10%. But even within London there are areas where prices are surging even more.

For example, the John D Wood & Co. indices are showing the largest price rises over the last year have been outer prime London. The indices, which use transactional data from the point of exchange from all leading estate agents, show that the biggest price gains have been in Primrose Hill where values rose by over 40%, Wandsworth where prices are up 36% and Battersea which has seen a 28% gain.

Prices have continued to rise across prime central London properties in 2013, but have not seen the dramatic gains of its neighbours. Flats have out performed houses with rises of 13% in Belgravia, 10% in Chelsea and 5% in Kensington and Holland Park.

‘Prices in central London are now so high sellers are unable to trade up in the same part of the capital, instead they are choosing to swap, say, a two bedroom flat for a house in neighbouring areas such as Fulham, Primrose Hill, Wandsworth and Battersea,’ said James Wyatt, head of valuations and surveying at John D Wood & Co.

‘The shortage of properties in these areas has forced frustrated buyers to compete, often through sealed bids and this has pushed up prices. Evidence of this ripple effect can be seen across Greater London, as sellers move out to buy larger properties in neighbouring areas as the financial step to buy a larger property in the same location is now too great,’ he added.

Stephen Lewis, chief economist at Monument Securities said the FPC, which is tasked with spotting risks to the economy from the financial system, was right to hold off for now. ‘It's probably the right thing at the moment. There is a lot of uncertainty at present about the housing market,’ he pointed out.

The housing recovery has been helped by government and Bank measures to free up mortgage lending. A new phase of the government's Help to Buy programme is to be launched in January and Funding for Lending has also been credited with boosting the real estae market.

But in London experts say it is wealthy overseas buyers looking for safe have real estate investment that are pushing up prices. Certainly Bank of England Governor Mark Carney and Chancellor George Osborne have shown no concern about the prospect of a housing price bubble, pointing to levels of activity in the property market that are below their pre crisis peak.

But earlier this month the Royal Institution of Chartered Surveyors (RICS) called on the Bank to take measures to slow mortgage lending if national house price growth exceeds 5% a year. The suggestion met with considerable criticism.