London house prices soar above regions Manchester flat prices are a fraction of London's The gap between London house prices and those in the rest of the UK has become so wide that it poses serious structural obstacles to any national recovery in the housing market, leading property economists have warned. The flow of overseas money coming into the London property market has long kept house values in the capital above those elsewhere. However, the gap has become so enormous that the bulk of regional property owners can no longer afford to bridge it. Using the example of an average-priced five-bedroom house in the west London borough of Hammersmith and Fulham, Savills, the property consultancy, has revealed the extent of the divergence. Worth £2.5m today, such a house is equivalent in value to a portfolio of eight regional properties, consisting of three two-bedroom flats in the centre of Manchester, two one-bedroom flats in the centre of Nottingham, a five-bedroom family house in Guildford and a four-bedroom holiday home in Devon. In 2007, at the start of the global financial crisis, the same London house was worth £2.2m and could have been traded in for the equivalent of half that number of regional properties. Lucian Cook, a director of residential research at Savills, said the strength of London's economy, relative to the rest of the country, meant that "housing wealth has been increasingly recycled in the capital." "This created a significant divergence in house prices, widened the gap between the haves and have nots and impacted on the local economy with, for example, more competition for high quality schooling in the capital," Mr Cook added. Liam Bailey, head of residential research at Knight Frank, a separate property consultancy, said: "The gap has widened to such an extent that it confirms the complete separation between London's economic trajectory and that of the rest of the UK. [The property market in] London has more in common with New York and Hong Kong than with Birmingham or Manchester. The boom in London house prices has been underpinned by one major factor: overseas investment. A steady flow of buyers have come into London from across Europe, the Middle East and Asia. Most are attracted to London for its perceived safe haven qualities. Foreign purchasers ploughed £5.2bn into London property last year, £1.5bn more than in 2010, according to the Institute for Public Policy Research think-tank. The range of nationalities buying London property has also broadened during the financial crisis, more than doubling from 28 in 2008 to 64 in 2011. "London property continues to boom almost entirely due to foreign buyers perceiving the whole experience of living in London to be advantageous in so many ways from education through to its proximity to other parts of Europe," said Charles McDowell, an estate agent specialising in central London. "The problem for the rest of the country is that about 80 per cent of foreign buyers never go outside the M25, let alone buy there," he said.