London house prices: the current state of affairs

Houses prices in some areas of the capital rose by more than five per cent in April alone. A special market report by Graham Norwood

If you want to see the housing market at its strongest, look to London - but be quick about it. While the rest of the market is showing an occasional small price rise or remains roughly static, the capital's prices are steaming ahead. The property website Rightmove, which monitors asking prices (as opposed to Hometrack's actual sale prices in the table below) , says London prices are moving up faster than anywhere else in the country. Islington asking prices rose by 5.3 per cent in April alone, Kensington and Chelsea by 5.2 per cent, Hackney and the City of Westminster by 4.7 per cent and Hammersmith and Fulham by 3.8 per cent;

Hamptons International, an estate agent specialising in selling homes at the upper end of the market, says it has two examples of London properties - one in Chelsea, the other in Kensington - that are 15 per cent more expensive now than six months ago. And research departments at estate agents Savills and Cluttons have all increased earlier predictions for price rises this year. They forecast full-year rises of nine per cent and 12 per cent for London and only slightly less for wider south-east England, while the rest of the UK is muted, with only small rises expected;

The Royal Institution of Chartered Surveyors, which assesses sentiment from individual members rather than measuring specific prices, says of London: "Expectations for three months forward are for continued growth in prices, with confidence at its strongest since mid-2002".

So why is London flying, now, and why is it not happening in the rest of the country? "The strong performance by the capital is down to an on-going mismatch between the number of homes coming to the market for sale and the growth in demand" explains Richard Donnell ,who uses estate agents' sales data to produce a monthly index for Hometrack. "London continues to be the engine for national house-price growth with values in the capital moving 1.2 per cent higher over the month and by over three per cent over the last quarter. In contrast, growth away from the south of England has totalled less than 0.5 per cent over the last three months".

Hometrack shows that the supply of homes for sale in London has grown by 14 per cent over the course of the past three months - but demand, in the shape of would-be buyers registering, has grown by more than 50 per cent.

London's price surge this year started in January in what property insiders call "prime areas" of the capital, consisting of the West End, Notting Hill, the City, Docklands, Mayfair and Belgravia. In the year to April, prices in these specific highly-expensive locations monitored by the estate agent Knight Frank rose by 13.5 per cent, the highest rate since 2001, with about half of that rise coming in the hectic first three months of 2006.

Liam Bailey, head of research at Knight Frank, says the jobs market in central London has underpinned demand for property in the prime areas.

"Although the wider UK economy slowed during 2005, there was very strong employment growth in the City - 4,900 additional jobs in 2005 and a forecast 7,100 for 2006 and 12,700 jobs in 2007 according to the Oxford Economic Forecasting consultancy. These jobs are specifically in the most lucrative areas of the financial sector" says Bailey.

But experts say the current bull housing market will not last beyond the summer. Firstly around 65 per cent of London's property transactions take place between January and late July, so business volumes fall every autumn anyway; secondly, economists predict that higher petrol and domestic fuel costs and a new wave of council tax rises will gradually restrict spending and diminish enthusiasm for moving home.

"On the supply side, estate agents are reporting increased levels as new sellers come to market - perhaps encouraged by the recent upturn in prices. But supply is still at a relatively low level and in spite of strong buyer interest, this, coupled with higher house prices choking off some demand, suggests that activity will fall towards its longer term average over the coming months" says Fionnuala Earley, Nationwide's chief economist.

In other words, as increasing numbers of buyers find London property to be unaffordable so future rises will be stemmed.

Sale-price increases in Greater London boroughs in April

* Camden 2%

* Hackney 2%

* Lambeth 1.9%

* Wandsworth 1.9%

* Haringey 1.8%

* Islington 1.8%

* Ealing 1.7%

* Southwark 1.7%

* Kensington & Chelsea 1.6%

* Lewisham 1.6%

* City of London 1.5%

* Hammersmith and Fulham 1.5%

* Merton 1.5%

* Richmond-upon-Thames 1.4%

* Kingston-upon-Thames 1.3%

* Havering 1.3%

* Barnet 1.2%

* City of Westminster 1.2%

* Barking and Dagenham 1.1%

* Tower Hamlets 1.1%

* Brent 1%

* Enfield 1%

* Croydon 0.8%

* Bromley 0.7%

* Harrow 0.7%

* Redbridge 0.7%

* Hillingdon 0.6%

* Sutton 0.6%

* Bexley 0.5%

* Hounslow 0.3%

* Waltham Forest 0.3%

* Newham 0.1%

* Greenwich 0%