LONDON (Reuters) - British house prices shot up at their fastest annual pace in more than three years in September, industry data showed on Friday, just hours after the Bank of England was told to monitor a government lending scheme more closely.
Nationwide Building Society reported that the annual rate of house price growth jumped to 5.0 percent in September from 3.5 in August, the biggest increase since July 2010 and one likely to further stoke concerns about an untenable house price boom.
Land Registry data for August also released on Friday - which is more comprehensive but lags behind mortgage lenders' surveys - showed the biggest annual house price rise since November 2010, though this was a comparatively modest 1.3 percent.
Both surveys show house prices just under 10 percent below their pre-crisis peaks.
British house prices have picked up over the past 12 months, aided by government schemes to lower banks' borrowing costs and help home-buyers struggling to find large mortgage deposits.
The latter scheme - named Help to Buy - is set for further expansion at the start of next year, and in an unexpected move late on Thursday, Conservative Chancellor George Osborne said that he wanted the Bank to keep a closer eye on whether the scheme might stoke a bubble.
Previously the bank was only due to vet the scheme after three years. Now it will do an annual check on whether the 600,000 pound ($960,200) limit on properties that can be bought under the scheme is too high, and if fees charged to banks are too low.
However, Rob Wood, an economist at Berenberg Bank, said the checks were unlikely to stem further rises in house prices.
"This change looks like closing the stable door after the horse has bolted. The scheme cannot be reviewed until next September and reducing the 600,000 cap is unlikely to be a big deal for the bulk of the country outside London," he said.
"Changing the price could be important, but the (BoE) has said it will take a 'graduated approach' on the housing market, so they seem unlikely to change the fees substantially and soon," he added.
Nationwide's data showed that house prices rose strongly for the fifth straight month, as prices climbed in all regions for the first time since 2007, and London prices hit record highs. Land Registry data also showed a big regional divergence.
But Nationwide warned that affordability could become stretched if demand keeps outstripping supply, although rock-bottom interest rates are helping those with mortgages.
The opposition Labour Party urged the central bank to review the scheme before a second stage starts in January, saying it would benefit too many richer home-buyers and failed to address a housing shortage.
Industry reaction to the scheme is mixed, with the Royal Institution of Chartered Surveyors concerned it may fuel a price bubble in London and southeastern England, while the Council of Mortgage Lenders warned that it would be unattractive if the terms of the three-year scheme changed at short notice.
BoE Governor Mark Carney, in an interview with the Yorkshire Post newspaper, reiterated his view that Britain's housing market was seeing a turnaround, but that levels of activity remained only around two-thirds of their longer-term averages for the sector.
"The core of the recovery is not housing, but that said, the prospects and level of activity in housing have turned from low bases and we as the Bank need to be vigilant about how those dynamics move in the future," he said.
Official data released on Thursday confirmed that Britain's economy expanded by 0.7 percent in the three months to July, though the growth appeared more reliant on consumer demand - which is boosted by house prices - than previously thought.
On Friday, polling company GfK reported that consumer confidence was at a six-year high, bolstered by households' rosier view of the coming 12 months.
"Whether the current economic recovery is real or will prove to be a credit-fuelled bubble, this continuing steady growth in confidence looks like good news for the government," said Nick Moon, managing director of social research at GfK.
($1 = 0.6249 British pounds)
Editing by Jeremy Gaunt, Ron Askew