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Fears of London housing bubble grow

A new report by an economic forecasting group has sparked fresh fears over the emergence of a housing bubble in the London property market.Ernst and Young's Independent Treasury Economic Model (ITEM) Club has warned that the average price of a home in the nation's capital could reach £600,000 by 2018. This figure is 3.5 times greater than prices in Northern Ireland and 3.3 times greater than those in the north-east of England.It calls for the Bank of England's Monetary Policy Committee to play a central role in guarding against a bubble  - it could do so by imposing a formal limit on income multiples.An alteration of the Help to Buy policy is rejected by the group, however, as this initiative has little effect on the market in the nation's capital. Withdrawing the scheme could have a negative impact on the recovery, according to Andrew Goodwin, senior economic advisor to the EY ITEM Club.The report makes a number of observations about the current state of the UK housing market. It reveals a regional divergence in house prices, with those in the south-west and the east of England set to rise 6.2 per cent in 2013-18, while those in the north-east are forecast to grow by 4.2 per cent."The regional outlook points to stronger job creation and income growth in the southern regions, not least because of their lesser exposure to the public sector cuts. And with supply problems also at their most acute in the south, these regions are likely to have the strongest price growth indicating a widening gap between the south and the rest of the UK," Goodwin commented.Help to Buy will continue to stimulate the recovery, helping to level the playing field and ensuring households are not locked out of the market, the report says. Over 1.36 million people are set to move home in 2018.Although recent market trends are described as "encouraging", the report says the government could do more to improve supply, particularly in the London area. 

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