House prices rising at fastest rate since 2003

The housing market will end the year with prices rising at their fastest clip since the immediate aftermath of the Iraq war, figures showed today.

The average price of a home rose 0.3 per cent over December to take the annual rate of price inflation to 5.7 per cent, the highest rate since July 2003, said Hometrack, the housing information business.

London prices have grown by 12.1 per cent over 2006, led by the prime markets of Kensington and Chelsea and Islington where values have risen by more than 20 per cent over the year.

"The big story of 2006 has been the strength of the bounce-back in London prices after the under-performance of values in this region between 2001 and 2005," said Richard Donnell, its research director.

"The re-pricing process that occurred over this period meant the market started 2006 with clear headroom for growth."

After London, growth over the year was highest in the South -east (5.5 per cent) and East Anglia (4.7 per cent). In contrast, most other regions saw relatively low levels of growth with the lowest rises in the North of England (0.5 per cent) and the East Midlands (0.7 per cent).

Overall Hometrack expects prices to rise by 4 per cent over 2007 with the strongest growth again expected in London and the South East. It said a continued lack of housing for sale would keep an upward pressure on prices in London, where City bonus money has the greatest impact.