Fresh warning of London bubble

London is on track to be in a house price bubble by 2017, new research suggests.

The latest alarm call about the capital’s property market follows a report by Swiss Bank UBS last week which said that the explosive London bubble is the most dangerous in the world.

Now the new UK Housing Market Observatory at Lancaster University has issued a similar warning.

The Observatory has been set up to monitor for signs of "exuberance", or bubbles, in prices in the UK regions.

It will release its analysis each quarter alongside the latest house price data, which is based on econometric techniques developed by Yale university economist Peter Phillips.

After rising 11% in the last year alone, it said the capital's market is "very close to entering an exuberant phase".

The report said: "Historical evidence suggests that phases of exuberant house prices are often followed by a sudden crash leaving homebuyers with large mortgages and negative equity."

It said there are signs of this happening already, with the ripple effect spreading to outer London as well.

The Observatory said that if real house prices in London continue growing at 2.75% per quarter they will enter the bubble phase in 2017.

Although prices across the UK  are at an all-time high, exceeding peak values set in 2007, there are no signs of a bubble nationally, it said.