London house price surge

Booming houses prices are returning to London and the South-East with property values forecast to surge by at least 13 per cent this year.

The revived strength of the economy and the return of City bonuses will fuel a double-digit rise in property values across the region, according to a survey from Britain's biggest building society, the Nationwide.

The prediction will heighten concerns about the problems facing first-time buyers in London and increase the chances of the Bank of England increasing interest rates later next week.

The survey says London house prices, which have been stagnant in much of the capital-By Jonathan Prynn

Consumer Affairs Editor since the collapse of the Stock Market in 2000 and were also badly affected by the Iraq war, are starting to accelerate again. Having grown at six per cent over the past year, they will rise by an average 10 per cent this year.

That will add around £25,000, or £500 a week, on the typical £250,000 London property this year.

For the South-East region they are forecast to rise even faster - by 13 per cent - with central London prices expected to go up by at least 10 per cent.

The survey said: "Strength is returning to London and the South-East housing market with earnings growth contributing significantly to some resurgence.

"Average earnings, including bonuses, have risen by

7.2 per cent over the past year, indicating strong employment prospects in the South-East.

"Unemployment rates are now falling in the region ( having previously been rising) and are at a similar rate to the previous year.

"The stock market has also made a strong recovery having risen around 20 per cent over the past 12 months."

The biggest increases in the first quarter of this year were in Hounslow with rises of up to 25 per cent. Other boroughs seeing the biggest rises include Tower Hamlets, Barking and Dagenham, Redbridge and Brent. The most sluggish house prices were in Islington and Camden, where there was no growth at all in the first quarter.

However, London's renewed house price boom is dwarfed by the astonishing pace of property prices in much of the rest of Britain.

The fastest increases of all are being seen in Liverpool where they are spiralling at a rate of 40per cent or more. Other areas seeing very strong growth include parts of Wales, Scotland and the north of England that had previously missed out on property inflation. For the country as a whole the Nationwide has upgraded its forecast rise in prices from nine per cent to 15 per cent.

The survey also rules out an early Nineties-style crash.

Nationwide ' s chief economist Alex Bannister said: "While the latter half of 2004 is likely to see slower growth in prices a slump remains unlikely.

"Despite a rise in interest rates there is little chance of a significant economic downturn this year.

"Some commentators fear a collapse in the buy-to-let market will undermine property price growth. However, while rental yields are low ... most recent buyers have made reasonable gains."