Real Estate

Bubble alert? UK house prices rise to 6-year record

London is suffering a housing supply shortage: Pro

Asking prices for U.K. houses jumped above £250,000 ($419,050) in February, up 6.9 percent on the same time last year, marking the highest annual increase for more than six years in a fervent UK property market, according to a new study.

The 6.9 percent year on year rise pushed real estate prices up by £16,223 across Britain, data from property website Rightmove's housing index showed, fuelling further concerns that the country's housing market is trapped in a bubble. Past U.K. housing bubbles have had a damaging effect on the economy when they burst, with many homeowners finding themselves in negative equity. A new crash could also dampen consumer spending, with knock-on effects for Britain's on going recovery.

An 18 percent boost in the number of new sellers compared to a year ago failed to make up for a supply shortage driving property prices higher.

"We need more supply to come to market to stop prices rising too dramatically," Miles Shipside, Rightmove director and housing market analyst, told CNBC in a TV interview.

(Read more: No UK housing bubble, just a London one: EY)

"Supply and demand imbalances remain and are getting worse in many markets, as a result of years of under-provision of additional housing stock, especially in the areas where the local economy and employment are strong," Shipside said in a press release.

While all regions in the U.K. have seen house prices go up, the latest rise has been driven by rapidly escalating prices in London and the south east of England, where house prices are up 11.2 percent and 7.8 percent respectively compared to the year before.

Graeme Robertson | Getty Images

An average house in the capital costs £541,313, double the national average. The average house price in the borough of Kensington and Chelsea, one of London's most affluent areas, is in excess of £2 million.

With historically low interest rates, cheap money available and government mortgage schemes on offer, Shipside said people were making this the "year to move".

BoE rejects housing bubble

Bank of England governor Mark Carney rejected claims of a housing bubble in a BBC TV interview on Sunday and said housing activity remains below historical averages

(Read more: Bubble trouble? Experts clash over UK housing)

"What we've seen in the housing market is an adjustment from very low levels. So if you look at the level of transactions, how many houses are purchased how many mortgages are struck, they dropped more than 50 percent…they have not bounced back but they are still more than 25 percent below historic averages, let alone stronger than historic averages," he said.

Carney also added that he is "conscious" of the boom-and-bust nature of the U.K. housing market, but the central bank is powerless to do anything about it.

"Much of what's driven in London is not mortgage driven, but it's cash driven…The top end of London is driven by cash buyers, it's driven in many cases by foreign buyers. We as a central bank can't influence that," Carney said.

—By CNBC's Arjun Kharpal: Follow him on Twitter @ArjunKharpal