London houses average £200,000

Property prices have shot up 14.8 per cent in a year in London. But for once the capital is not leading the boom - the national average rise is nearly 20 per cent, according to new figures.

The average cost of a London property is well over £200,000. A first-time buyer will need to earn £49,500 to afford a five per cent deposit and a mortgage of three times salary.

This is more than twice the starting salary for health workers, teachers, police and firefighters. Nationally, house prices are rising faster than at any time since 1989 and have already shot up 11.3 per cent since January, the Nationwide Building Society survey reveals today.

They rose by 3.3 per cent in June alone, making the price of the average UK home £106,700, nearly 20 per cent higher than a year ago. With no slowdown in sight, the Nationwide has dramatically revised its predicted rise for 2002 from 10 per cent to 18 per cent.

The Nationwide, whose survey is widely regarded as the most authoritative in the housing market, predicts: "We do expect London price growth to continue to slow this year, with affordability and a reduction in demand for buy-to-let property both playing their part".

Economist Alex Bannister said the continuing boom was the result of high employment and low mortgage rates, but also "high levels of confidence and the expectation that prices will rise strongly over the next few years.

"Most borrowers are not overstretching themselves. Mortgage payments for first-time buyers are around 35 per cent of takehome pay. They are also finding enough money for average deposits of around 15 per cent.

"However, prospective first-time buyers, particularly those on average earnings, are finding it tough to get on the housing ladder. We expect the pace of growth to moderate because of modestly higher mortgage rates later this year and a slowdown in employment and earnings growth."

The Nationwide said job creation is weakening and real takehome pay growth has slipped. It also expects base rates to rise to around five per cent over the next six months.

East Anglia is seeing house prices rising by more than 23 per cent a year. Within London, the fastest rise has been in the cheapest boroughs: Barking and Dagenham, Waltham Forest, Redbridge and Newham all saw prices up over 25 per cent compared with last year.

The lowest rises, between five and 10 per cent, were in Kensington and Chelsea and Tower Hamlets. Nationwide says: "London price growth will slow more markedly than elsewhere, as affordability is more stretched. However, there is a risk that London price growth could accelerate again before it finally cools."