Real Estate

UK house prices rise but storm clouds gathering

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U.K. house prices increased by 12.1 percent in the year to September 2014 but property agents warn that political developments in the U.K. are denting growth at the higher end of the market.

According to the Office of National Statistics (ONS) house price index for September, U.K. house prices increased by 12.1 percent in the year to September 2014, up from 11.7 percent in the year to August 2014 and the highest annual increase since July 2007, when prices increased by 12.3 percent.

House prices continue to increase strongly across the U.K., with prices in London again showing the highest growth: an annual increase of 18.8 percent in September.

Despite the continuing increases in property prices, particularly in London, prominent real estate agents in the U.K. say that upcoming political events and proposals could dent the housing market's meteoric rise.

The forthcoming general election in May 2015 and the prospect of a controversial tax on homes worth more than £2 million ($3.2 million) – proposed by the opposition Labour party in the U.K. -- were having a "moderating" effect on the prime London residential housing market, U.K. estate agent Savills said on Tuesday.

In the agent's latest trading statement, Savills said the "general election and the potential implementation of a 'Mansion Tax' thereafter has had the expected subduing effect on buyers, albeit that we have seen registered buyers per listed property rise since the low point around the Scottish independence vote in the summer."

The details of a proposed mansion tax are still being worked out, but shadow chancellor Ed Balls has said the levy would begin at £3,000 a year. Data from high-end estate agent Strutt and Parker in October showed that the overall transaction value of luxury homes in prime central London locations had fallen by over 20 percent.

Read MoreLuxury London property sees further decline

The decline is part of a larger global trend, however. The Knight Frank Prime Global Cities Index, which tracks movement in luxury residential prices across 33 cities, rose just 0.2 percent over the July-September period, the weakest pace in two years.

Read MoreGlobal luxury home price growth slows to a halt

On Monday, data from online real estate portal Rightmove showed that the prices of property coming to market in the U.K. fell 1.7 percent in November from the previous month, showing that sellers were competing on property prices "in a bid to stand out during quieter winter months."

Still, having measured the asking prices of 94,260 properties (around 90 percent of the market), Rightmove found that house prices had risen 8.5 percent from November last year.

"Underlying demand remains strong but has been muted by higher prices stretching affordability at the same time as the ability to borrow more to fund those higher prices has been curtailed by tighter mortgage lending criteria," Rightmove's company's director and housing market analyst Miles Shipside said.

"Selling is more difficult than it was earlier in the year, though the mini-boom experienced by much of the country has hit the pause rather than the stop button," Shipside added, calling the upcoming election a "distraction." "The closer we get to May's general election some will put off buying decisions."

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt.