The governor of the Bank of England has admitted it is powerless to control soaring prices of prime property in London.
Mark Carney played down fears of a bubble in the wider market, dismissing suggestions that the coalition’s controversial Help to Buy scheme was having a significant effect.
But the governor made clear that when it came to the boom in the most desirable areas of the capital, which many blame for stoking prices elsewhere, the Bank could do little more than “watch”.
“The top end of London is driven by cash buyers,” he told the BBC’s Andrew Marr Show. “It’s driven in many cases by foreign buyers.
“We as the central bank can’t influence that. We change underwriting standards - it doesn’t matter, there’s not a mortgage.
“We change interest rates - it doesn’t matter, there’s not a mortgage, etc. But we watch and we watch the knock-on effect.
“I will say that if you look at the UK as a whole everywhere, bar Northern Ireland, we are now seeing house prices begin to recover.”
Figures from the Rightmove website last week found the average asking price in England and Wales has risen by some £14,000 over the past year to £243,861.
A report from estate agents Savills and analysts Property Database also found that average prices in 43 areas have broken the the £1 million barrier - 34 of them in London, and the remainder in the commuter belts of Surrey, Hertfordshire and Buckinghamshire.
Mr Carney said the Bank had to set its policy for the “entire country”, and the wider market was seeing an “adjustment from very low levels”.
Prices relative to income were still below their peak “even in the hottest parts”.
“But we have to be very conscious and we are very conscious of the history, the economic history in Britain, and there is a history of boom and subsequent bust in the housing market,” he said.
“That’s one of the reasons why the Bank of England has been given additional powers and one of the reasons, as of last November, we started to use those powers.
“So we’ve tightened up on underwriting standards, we’ve tightened up on capital standards, we’ve taken away special stimulus programmes that existed before.”
In November the Bank and the Treasury announced that financial institutions would no longer be able to use the Funding for Lending (FLS) scheme to support mortgage loans.
But Mr Carney indicated there was little prospect of Help to Buy being reined in, describing its impact as “pretty small”.
“It’s all outside of London. It’s for lower priced houses as a whole and it’s mainly first-time buyers,” he said. “So it’s not driving the housing market, but we have a responsibility to watch it and we will speak out if we are concerned.”