London house prices are set to surge six per cent this year — adding £30,000 to the value of a £500,000 family home, a top estate agent said today.

The new projection comes on the day official figures showed mortgage lending at its highest level since the banking crisis, as buyers flood back into the market. Experts at Savills said they had ripped up their “premature” prediction of “flat” prices in central London after stamp duty rises in last year’s Budget failed to slow down growth.

But the move will reignite fears that thousands of young people are being priced off the property ladder. Lucian Cook, director of Savills’ residential research, said “a clear Bank of London effect” was keeping prices higher as foreign investors and British home-owners alike choose to tie up their money in London bricks and mortar.

He said: “At a global and UK level, London is viewed as a relatively safe place to own property and, once invested, buyers are reluctant to withdraw their equity.” Other factors have been a chronic shortage of supply, record low mortgage rates and easier access to loans following the Government’s Funding For Lending scheme.

Most agents had forecast flat prices or even small falls this year after Chancellor George Osborne put stamp duty of seven per cent on homes bought for more than £2 million, increasing to 15 per cent if bought through offshore companies. It was thought that this would deter foreign buyers, resulting in a cooling of the overall market.

But a July index from agents Knight Frank and researchers Markit, out tomorrow, will show confidence about future price rises at record levels in London households. Although Savills’ projections apply to top central homes, other property experts said much of the rest of London is experiencing similar growth with some of the hottest markets just outside the centre.

Michael Hodgson, chairman of agents Douglas & Gordon, said: “With falls unlikely, we have undercooked our prediction of an eight per cent increase in capital values in 2013. So egg on our face but not as much as some of our illustrious competitors.”

Barclay Macfarlane, head of agents Strutt & Parker in Fulham — where prices are up 13 per cent this year — said: “The threat of a mansion tax and the stamp duty rise at £2 million are two issues that seem to have subsided.”

Source: Evening Standard