City bonuses fuel rises at top end of the housing market

House prices in the wealthiest parts of London have bounced back as City bankers and brokers anticipate hefty bonuses this year, according to two research reports out yesterday.

The prices of the average property in "prime" central London jumped by 1.1 per cent in October, the largest monthly increase since February 2004, according to the estate agents Knight Frank. The move follows an average growth rate of just 0.3 per cent in the previous three months.

Knight Frank said that shortages of quality properties at the upper end of the market combined with news of increased City bonuses and salaries had contributed to the rise.

The survey covers flats worth more than £1.5m and houses with an average value of some £3m in London's most desired postcode addresses in central, south-west and north-west London.

Liam Bailey, its head of residential research, said: "The reason why the prime London market is robust is because it is the capital of Europe. It is the centre of the European financial, art and media, and legal markets."

Meanwhile, a report from Propertyfinder.com showed that talk of City bonuses had boosted price expectations among buyers and sellers. It said 54 per cent of the 437 people who took part in an online survey expected prices to rise over the coming 12 months.

It said that in London and the South-east, the two regions that tend to benefit most when the City institutions pay big bonuses, 61 per cent now expected prices to rise. It said that moves in confidence tended to feed through to transactions three or four months later.

Jim Buckle, its managing director, said: "This renewed upward momentum, combined with the expectation that the financial services industry will be paying big bonuses this year, heralds a strengthening of the housing market into the new year."

But there was a more sober message from the Land Registry, which said that the price of the average home in England and Wales rose by 3.5 per cent in the year to September, the weakest growth for nine years. Its report showed the number of sales had tumbled by 15 per cent over the past 12 months.

The figures appeared to contradict statistics from the Bank of England, showing a rise in mortgage approvals, and from Halifax bank and Nationwide building society showing a rise in prices.