House prices continued on the rise according to data released from property listing Web site Rightmove.  A new record high was recorded with an average of properties for sale being £272,003.  The increase between the average house price from April and May was almost £10,000.  This is the largest month to month increase ever recorded by Rightmove.  The average house price increased by 9% over last year. 

Much of the increase is credited to the rising house prices in London which saw an increase of 16.3% while the rest of the country experienced an increase of only 4.9% in the average house price.  The breakdown shows that London house prices have increased by almost £80,000 in 2014.

The increase in house prices and the demand for property may be attributed to the Help to Buy scheme.  Borrowers are allowed to borrow at lower deposits on homes worth up to £600,000 with the Government providing a loan for the other portion of the deposit that cannot be met by the borrower.  The Bank of England has said they will be watching to see if the scheme is contributing to the rising house prices.

There is a possibility of imposing a mortgage borrowing cap where borrowers will then be limited to a certain ratio of mortgage cost to salary to help reign in the high demand for property.

The Bank of England’s Governor, Mark Carney, said in an interview to Sky News, “We could do more, we could take steps around affordability to test whether or not individuals can test mortgages at much higher interest rates.

“We could limit amounts of certain types of mortgages that banks could undertake, we could provide advice - the Chancellor has asked us if we would provide advice on changing the terms of Help to Buy - all those things are possibilities and we will consider them all.”

The MPC has assured that the standard base interest rate should stay as is at 0.5% and that there is no plan to increase it to control the housing market.  However, the minutes from the May meeting are due to be released in a few days and that should indicate if there were members that were considering a vote to increase the rate.