The high demand for quality homes in areas like Kensington has seen prices rocket by nearly 30 per cent in the past year, according to a survey by Savills Residential Service. But figures from the London Research Centre suggest that buyers who bought their first home in 1989 will have to wait a further four years before shrugging off negative equity.
Savills say flat prices in Kensington, Holland Park and Notting Hill increased by 28 per cent over the past year. House prices in the same areas rose by 22 per cent. In Mayfair, Belgravia, Knightsbridge and Chelsea they have risen 22.3 per cent, and flats in Hampstead by 16.7 per cent since last June.
But prime properties in other areas such as Docklands, which despite being one of the first markets to recover last year, languished in the second quarter of this year. Savills found Docklands values fell by 0.7 per cent, leaving the total annual rise at only 7.5 per cent.
'The question now is how long it will last,' said a spokesman. 'There appears to have been a lull in the mainstream sector and this has impacted on lower price prime properties in Docklands.
'Even there, however, the more expensive housing is still in high demand. Agents in core central areas still report a market which is desperately short of supply in the face of strong demand.
Property experts believe the boom has partly been caused by a fierce interest from foreign buyers and workers from the City who have enjoyed bumper bonuses recently, some as high as pounds 200,000 - enough to buy a property outright.
But the latest survey by the London Research Centre says Londoners who bought their first home in the first three months of 1989 have seen the values of their property fall by more than 20 per cent.
The centre says that around 80 per cent of those first-time buyers who bought in that quarter are now suffering negative equity, and that it could take four years for them to recover their loss.
Mr Robert Frew, housing analyst at the centre, said building societies and banks were slow to help borrowers with negative equity problems, and were setting stricter conditions than for other loans.
Both pieces of research offer little hope for those first-time buyers who bought at the end of the last property boom, investing in studios and conversions in less prestigious areas. Buyers no longer want these properties.
Meanwhile, research by the Britannia Home Owners Confidence Monitor, a quarterly survey commissioned by the building society, shows that 62 per cent of Londoners believe less of their income is being spent on their mortgage, compared to 37 per cent of the rest of the country, perhaps because London experienced greater price fluctuations during the boom and recession.
Two-thirds of those surveyed expected some eco-nomic improvement within the next six months, and 80 per cent were confident or very confident of a housing market recovery.