House prices show capital is still pushing ahead of rest of the country

House prices increased by 0.2% during this month, but the rise was only driven by London and the South, a study said today. Prices rose by 0.6% in London and by 0.1% in the South East and East Anglia, but remained static or fell in the North, the Midlands and in Wales, Hometrack said.

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A widening gap as the number of homes on the market outstrip buyer demand is likely to hold prices back outside London in the coming months, along with rising mortgage rates and concerns about the eurozone and unemployment, the report said. The number of new buyers registering with estate agents across the country slowed over the month, recording a 0.4% increase compared with 2.1% in April. The volume of properties coming to market also slowed down as part of a seasonal post-Easter pattern, but the 2.2% increase it recorded over the month is a higher rise than that for new buyers.

London has continued to demonstrate its relative strength in the tough market, with demand having risen ahead of supply over the last three months.

But across the Northern regions, the number of new potential buyers has risen by 9% while the number of houses coming on the market has increased much more sharply, by 28%. In the East Midlands, the West Midlands and the South West prices remained unchanged over May, while they fell by 0.1% in Wales, the North East, the North West, and Yorkshire and Humberside. Richard Donnell, director of research at Hometrack, said: “Increased mortgage rates and mounting concerns over the impact of the eurozone on the UK’s economic growth and employment are likely to keep demand and prices in check as we move into summer.”

Lenders have been raising their mortgage rates for both existing customers and new ones this month, blaming the weak economy and the increased cost of funding a mortgage. London has enjoyed strong demand from overseas buyers, but the study said that much of its latest price rise came from the largely domestic markets of south west, south east and north London, with price growth in central London being lower in May than in these outer boroughs. Last week, figures from the Office of National Statistics said house prices in London had fallen by 0.2 per cent – the first drop in 30 months.

The proportion of the asking price achieved was at its highest in London at 94.6% and its lowest in the North East at 91.2%, standing at 93.2% across England and Wales.