Surging house prices 'signal the start of a fresh boom'

The housing market is on the brink of a new boom, according to reports today showing London prices rising at the fastest pace since Labour came to power and the sales volume hitting record levels across the UK.

Central London property prices grew by 23.5 per cent in the 12 months to September 2006 - the highest rate since June 1997, the previous peak marked by Tony Blair's first election victory.

Hometrack, a property website, said UK price rises had hit a two-year high of 4.3 per cent while another report showed that a record number of homes changed hands in September.

The reports will heighten speculation that the Bank of England will raise interest rates to curb the boom in November - but perhaps as soon as this week.

Knight Frank, the London estate agency that compiled the figures, said prices in the heart of the capital had jumped by 2.2 per cent in September alone.

"September was an extraordinary month for the prime London market," said Liam Bailey, its head of residential research. "Buyers came back into the market in serious numbers after the summer break.

"Our records reveal the number of buyers registered to purchase property in central London is 111 per cent higher than the same period last year."

The upturn is not confined to London, the other surveys showed. Hometrack said the value of the average home rose 0.4 per cent over September, taking the annual rate of house price inflation to a two-year high of 4.3 per cent.

"Despite the rate increase in August, house prices continue to rise as we start the autumn selling season," said Richard Donnell, Hometrack's research director.

"Prices have risen in nine out of 10 regions over September, largely on the back of a decline in the volume of homes available for sale over the month. This lack of supply, set against rising levels of demand, is providing extra impetus for house prices - negating the impact of the recent increase in interest rates."

An index produced by Your Move, a network of estate agents' chains, showed that home sales surged by 22 per cent to above 175,000 in September. The transactions have pushed the volume of homes still on the market down by 10 per cent, to the lowest level since 2004.

The Bank of England's Monetary Policy Committee (MPC) meets on Wednesday and Thursday to set interest rates with its full complement of nine economists for the first time since March. Only one City economist does not believe they will leave the base rate unchanged at 4.75 per cent.