Wealthy foreigners distorting UK housing market For the UK as a whole, though, prices are still 0.2pc short of their earlier record. Excluding London, they are down 4.8pc. Harry Clifton, managing director at Benthorp, said: "Overseas investors into central London will continue to distort the local market, forcing prices up as they seek safe havens from recently volatile Middle East economies. Despite the steep prices for London properties by any absolute measure, cash rich overseas investors are still adding to collections of £2m to £5m second and third homes or adding to their portfolio of £10m plus property assets. For overseas investors they are driven by a global relativism - the sharp percentage decline in sterling versus the dollar and the euro over the past year despite a recent rally in sterling - has made expensive London property relatively affordable again. According to property group Savills, prime central London prices have more than doubled since 2005, making London "a honeypot for wealthy real estate buyers." Peter Rollings, chief executive of estate agent Marsh & Parsons, added that an imbalance in supply and demand is pushing up central London prices faster than elsewhere. "In the three months to June, we recorded 11pc more buyers entering the market in competition for 14pc fewer properties," he said. The housing data may fuel concerns about the Government's Help-to-Buy subsidised mortgage scheme, which Business Secretary Vince Cable has warned could lead to an "old-fashioned property boom." Mr Cable has suggested barring the scheme in London, and senior Liberal Democrats are reported to be considering plans to lower the scheme's £600,000 threshold, limiting its use in the capital, where the average house price is now £438,000. George Osborne has rejected suggestions that Help-to-Buy will cause a bubble. Instead, the Treasury claims it will trigger a building boom that will prevent prices spiralling upwards. Housing minister Mark Prisk said yesterday: "New housing supply is at its highest level since 2008, with 334,000 new homes built in England over the past three years, including 150,000 affordable homes." The ONS house price figures for the year to July revealed the huge regional differences in the UK market. After London, the South East saw the next-largest rise - of 2.6pc. Together they drove a 3.3pc annual increase in UK prices, up from 3.1pc in June, with the average home now costing £245,000. Excluding London and the South East, though, UK prices increased by just 0.8pc over the past 12 months, and the average home cost £192,000. Excluding London alone, UK house prices rose 1.3pc and the average home cost £213,000. Simon Hayes, UK economist at Barclays, said: "The official house price data highlights the disconnection between London and the rest of the UK. With inflation at 2.8pc over the same period, house prices fell in real terms in every area except London. So far, only London and the South East have seen prices return to pre-recession levels, but the impact has been to lift prices for England as a whole to a new high. London house prices are 17pc higher than in January 2008, while prices in the South East have climbed 0.7pc above their previous peak. Excluding the two regions, UK house prices are still down 6.6pc. Property experts pointed out that prices remain depressed in regions beyond the South East and London because buyers are struggling to gather a deposit, making affordable mortgages difficult to access. Richard Sexton, director of e.surv chartered surveyors, said: "The improvement has been focused mainly on the South East, where there are more equity rich buyers who can access mortgage finance. Unless you have significant chunks of equity it still isn't easy to get a mortgage. TUC General Secretary Frances O'Grady added: "Today's figures show that the UK's so-called recovery is based on house price rises rather than growing pay packets, with the cost of properties rising three times faster than wages. This may be enough for wealthy homeowners in London but it's no way to secure a sustainable recovery.