The introduction of the Mortgage Market Review is expected to prevent the creation of a property bubble similar to the one experienced during the economic crash.

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  • The EY ITEM Club has forecast growth of 7.2 per cent in 2015, followed by an increase of 4.2 per cent in 2016.

    FCA has to make its mark

    According to EY ITEM Club, the Financial Conduct Authority (FCA) has a vital role to play when it comes to keeping a lid on the market. It has the macro prudential tools at its disposal to make sure income multiples of borrowers do not become too stretched.

    Peter Spencer, chief economic advisor to EY ITEM Club, said the housing market is not currently experiencing a "typical debt-fuelled recovery", as the increase in gross mortgage lending has been financed by existing borrowers swelling their repayments.

    "New mortgage lending remains at rock bottom while government initiatives such as the Help to Buy schemes will be having little impact on prices in London, where activity is fuelled by cash rather than mortgage borrowing," Spencer stated.

    "The FCA will assume crucial importance to ensure multiples do not become too stretched and that affordability is scrupulously checked. If these controls are rigorously applied this will eventually constrain London prices, particularly in hotspots like Hackney, and head off problems when interest rates rise."

    London house prices rises out of this world

    Despite house sales slowing in March, average prices have risen to £17,500 in the last 12 months to £262,291 - the highest annual rise since September 2010.

    The latest LSL Property Services/Acdata England and Wales House Price Index shows that poor weather and a shortage of homes took its toll in March.

    However, this did not stop significant growth taking place in London, where price rises were twice as fast as any other region.

    David Newnes, director of Reeds Rains and Your Move estate agents, said this is a clear indication that the city is "operating on a different playing field".

    "The bottom line is we simply need more homes, not just to satisfy the growing demand but also to curb prices from rising beyond reach," he added.

    Newnes pointed out house hunters hoping to buy at the lower end of the market in London are facing an uphill battle to fulfil their dreams, which demonstrates why the lack of housing supply needs to be addressed.

    He is also calling for the government to puts its "rhetoric into practice".

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