At the end of March the quarterly Nationwide House Price Index indicated that house prices in London had risen by 18.2% over a 12-month period, almost double the UK average. Meanwhile, Land Registry data indicates that price growth hit double digit territory in 21 of the 32 London boroughs for which it produces 
an index.

In reality, London has been outperforming the rest of the UK since the mid noughties. According to the Nationwide, prices 
are now more than double the UK level, much higher than previous peaks in 1987 and 2001.

This position has been exacerbated by the fact that between 2001 and 2005, when the country was playing catch up with London, prices in the capital were still rising strongly. As a result, the balance between London and the UK was never fully restored.

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Overall that means London is theoretically left with less capacity for house price growth than other markets in the medium term and should slow significantly at the back end of the next five year period. However, this position is complicated by the distribution of price growth across London since mid 2005.

Land Registry figures tell us that prices in Kensington and Chelsea are 134% above their 2005 level, while those in Barking and Dagenham have increased by just over 10%. Between these extremes there is still a significant gap between, say, Wandsworth (+80%) and Greenwich (+23%).

This reflects the different drivers and constraints in equity rich and mortgage dependent markets. It also means that there remains some capacity for further price growth in some parts of London even if the current extraordinary rates of price growth are not sustainable.

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Taken from
Residential Property Focus Q2 2014