House prices soar

House prices are booming in the wealthiest boroughs of London following this year's bumper City bonuses.

Across the capital as a whole, prices are nine per cent higher than they were a year ago with rises in every borough, a new report reveals today. Only the City of London experienced a fall. But the most dramatic increases were across London's "bonus belt", with Wandsworth seeing the biggest rise of all - a 20 per cent surge to an average £338,826.

For London as a whole the average house price is now £262,685, according to the latest Land Registry figures.

But in seven boroughs, the average property costs more than £300,000, about eight times the typical London salary. In the most expensive of all, Kensington & Chelsea, prices shot up by 14 per cent and the average is almost three quarters of a million pounds.

The figures mark a reverse of the trend over the previous two years when prices languished in the most expensive boroughs-while poorer parts of east and south London experienced their own mini-boom.

However, estate agents in upmarket areas are now reporting a return to some of the excesses of the last boom such as competitive sealed bids for the most prized properties.

The phenomenon has been fuelled by the best City bonus round for three years, which has pumped hundreds of millions of pounds into "banker country" boroughs such as Hammersmith & Fulham and Wandsworth. However, property experts also warned that the trend of interest rate rises threatened the resurgence.

Jim Buckle, managing director of assertahome.com, said: "Househunter confidence in London and the South-East is the lowest in the country, according to our latest survey, and house prices are rising only modestly.

"Aggressive interest rate rises risk fracturing that fragile-confidence and tipping the market into a downturn." Other experts see a silver lining. David Bexon, chief executive of Smartnewhomes.com, said: "The rise may be a good thing by suppressing house price inflation which is starting to hit worrying levels."

Geoff Marsh, of London Residential Research, said: "Rises in interest rates will not affect owner occupiers as much as it will buy-to-let investors. They will have a significant impact on profitability for existing landlords, and also affect how much new investors borrow."

On a £150,000 flat with a market rent of £800 per month, an investor was until last week able to borrow 85 per cent of the price simply on the basis of the rental income. But if the base rate rises another 0.25 per cent to 4.5 per cent, most lenders would allow no more than £119,000, less than 80 per cent of the purchase price.

Ed Stansfield of analysts Capital Economics said: "Many buy-to-let investors who bought in the past 18 months are already seeing monthly losses, with the income not covering the costs and expenses."