POLITICS
28/05/2014 17:07 BST | Updated 28/05/2014 17:59 BST

London Housing Bubble May Naturally Deflate, Says Nationwide

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London's housing bubble may naturally deflate as buyers start to baulk at ever-increasing house prices, the boss of Britian's biggest building society Nationwide has said.

Chief executive Graham Beale said that the London housing market was starting to cool and urged the Bank of England to hold off taking action to cool the market for fear that it could hit still-subdued prices elsewhere in Britain.

"The market has gone from quite a frenetic state to a very busy state. I am a great believer in natural corrections. If house prices come up and up and up, there will come a point when people won't pay or they can't pay," he said.

"I think there are some indications that we are starting to see that correction within parts of London."

Nationwide said that housing market activity in London was starting to ease off while elsewhere in the country prices remained 2% below 2007 levels - or 21% when adjusted for inflation.

This comes as the most recent data from the Office for National Statistics showed London prices rising by 17%, compared to a UK average of 8%.

Meanwhile, Labour MP David Lammy told the Huffington Post UK that he feared London's property market was in a housing bubble that "at some point is going to burst".

"We have got to do something to ensure that we build homes, but we recognise that building these homes over the next decade is not going to happen soon," he said. "Lots and lots of people are renting, and there will be more people renting, so for that reason quite a lot of scrutiny has to be given to that rental market."

The most recent data from the Office for National Statistics showed London prices rising by 17%, compared to a UK average of 8%.

Speculation is mounting that the Bank of England's Financial Policy Committee (FPC) will next month step in to cool the market, after deputy governor Sir Jon Cunliffe warned it was the brightest of "blinking warning lights" of risk.

The Bank has said lenders could be asked to restrict borrowing terms or forced to hold more cash on their balance sheets if it feels action is necessary to cool the housing market.