House prices surge ahead

The market appears to have shrugged off last month's Northern Rock debacle and is set to rise for the rest of the year, according to two of the most respected surveys of prices published today.

The figures are good news for Labour in London - a key election battleground - if Gordon Brown decides to call a snap poll.

There had been fears that last month's credit crunch would feed straight through to consumer spending and house prices.

But so far the High Street and property market have proved more resilient than many commentators expected.

Today's figures from the Nationwide Building Society and Halifax show that prices in the capital rose rapidly during the summer. The Nationwide said they climbed 3.4 per cent between June and last month, the same pace as in the spring quarter, while the Halifax said they were up by 2.3 per cent.

Nationwide said the annual rate would be 16.5 per cent while the Halifax's figures put it at 18.3 per cent.

The figures are at odds with some other surveys which suggest a small downturn in August, although this could have been linked to the introduction of Home Information Packs.

The average price of a home in London went up from £260,644 to £302,486, according to the Nationwide. For first-time buyers it rose to more than £260,000, beyond the Conservative Party's proposed new stamp duty threshold of £250,000.

It was the ninth consecutive quarter that price increases in London outstripped the rest of the country, further widening the gap between the capital and all the regions.

The Nationwide said the extraordinary strength of the London economy, fuelled by the City, meant that prices would continue to outstrip the rest of the country.

Growth this year as a whole is forecast to be around 14 per cent. However, the building society said the "froth" would be blown off the market by smaller bonus payouts and possible job losses in the City at the end of the year.

Nationwide chief economist Fionnuala Earley said: "Insufficient supply of homes is unlikely to go away quickly and with employment required for the Olympic development there will continue to be some supporting factors in the London market."

The Nationwide figures show that home prices are going up fastest in Islington with a 31 per cent annual rise to £470,077. Next come Camden and Haringey on 26 per cent, and Hammersmith and Fulham on 24 per cent.

Martin Ellis, chief economist at the Halifax, said: "A strong economy and healthy labour market will provide a sound underpinning for the housing market over the coming months.

"Gross domestic product increased at an annual rate of 3.1 per cent in 2007 second quarter, comfortably above the long-term average rate of 2.5 per cent. Continuing supply shortages of both new house building and second hand properties for sale will also support house prices."

He added that most people would be able to cope with the increased cost of mortgages. He said: "The overwhelming majority of borrowers coming off fixed rate deals are expected to be able to absorb the increase in payments."