The average asking price boomed by £50,000 in September alone, according to the Rightmove house price index.
The shock rise has led property experts to describe London property prices as ‘unsustainable’.
Rightmove says the average asking price for property in London has risen from £493,748 to £544,232 in September; an impressive 10% increase.
However, for England and Wales prices increased by a modest 2.8% to £252,418.
Fewer sellers and strong demand force up property prices
Miles Shipside, a Rightmove director, said the increase was fuelled by fewer sellers putting property up for sale in London during the summer which led to a 4.3% price drop in August.
When sellers returned to the market in September, prices rebounded.
Miles said: “This increase is not sustainable in the longer term and some estate agents are reporting a buying frenzy in the prime areas of London.”
Now many estate agents covering those prime residential areas are reporting that their shelves are ‘bare’ with nothing to sell.
The rebound in sellers means that the average quarterly growth figures are now back in line with the recent trend of prices increasing by around 2% a month.
Experts say new-builds will help tackle property prices rocketing
There now needs to be a leap in the supply of new-build properties and owners wanting to sell coming to the market, says Rightmove.
Demand for property in London is coming from overseas investors who are snapping up new-builds to create a shortage and push prices up for all types of property.
Rightmove says that foreign real estate investors are increasingly attracted to London because it is seen as a world city and property in the capital is being viewed by them as a safe asset.
However, fears are now growing that a property price bubble is now forming in the capital since September’s rise is the biggest monthly jump since 2002. The rise also puts annual property price growth at 13.8% which is now more than five times the rate of inflation.
London property price bubble could burst
Should the bubble burst and prices for property in London collapse, the knock-on effect for the fledgling recovery of the UK economy could be serious and take it back to the banking crisis of 2008 when property prices last took a steep dive.
The implication for property landlords is that while there is no sign of a property bubble forming outside of London, investors are being warned to be wary about where they buy property in the capital. Indeed, Rightmove says that five of the 10 UK regions being monitored are seeing their prices fall in annual terms or remaining flat.
