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News: London house price 'timebomb' warning

London’s average housing price is set to soar by 34% over the next five years, reaching £400,000 by 2011, according to figures released today by the London Housing Federation.

As a result, the federation warns, London is sitting on of a ‘housing timebomb’ with the gulf between house prices and salaries growing wider than ever.

The figures, produced by Oxford Economic Forecasting, paint a worrying picture for would-be first-time buyers. While house prices are set to soar to £392,000, the forecast predicts annual wage increases of just 4.1% to 4.4% each year, meaning London’s average salary should reach around £41,000, while house prices will rise by 34% over the period. Currently, prospective home-buyers need a gross annual income of £79,379 to get a mortgage for an average-value home in the capital, said the federation.

And the situation is likely to worsen, according to the federation, as the population in the capital is expected to rise by 800,000 over the next decade, putting further pressure on affordable housing.

"Londoners are increasingly left with the choice of expensive rental accommodation, living in house shares or with parents, or leaving the capital," said federation head, Berwyn Kinsey. "The irony is that even as we are building more affordable homes, they are being sold through right-to-buy."

The number of new affordable homes funded by the government is still being outstripped by those sold through right-to-buy: 11,549 affordable homes were sold last year and 6,037 built.

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