The average London house price increased by 0.5% in January to £260,140 up from £258,568 in December, reveals the latest data from haart estate agents.

Despite the recent interest rate rise, confidence is high and January applicant numbers in haart’s London branches were up 30% on the same time last year, reaching record levels.

House prices in the capital are predicted to rise by up to 8% in 2007 as demand continues to outstrip supply and activity levels remain strong.

Applicant numbers at record levels

The London housing market has seen a strong start to the year with continued high activity levels pushing prices up. Applicant levels in haart’s branches were up 30% on January 2006 as the New Year encouraged buyers to make the move.

Paul Smith, chief executive of haart commented, “As buyers flood the market, potential sellers should look to take advantage and put their house up for sale now to achieve the best price and get a quick sale. There is a growing shortage of family homes and first time buyer properties and sellers will benefit from being decisive and committing to a move.”

Regeneration and bonuses buoy prices

Growth in the capital’s housing market was also driven by price increases in East London in January, as city workers looked to invest their end of year bonuses in property.

West London has traditionally seen large levels of city bonus money enter the market, pushing prices up, but a shortage of stock in January reduced this influx, keeping the price increase in the region down to 1.5%. In contrast, the regeneration in East London is creating good opportunities for those looking to invest in buy to let property and the high demand is resulting in strong price increases of 2.5%.

Areas within the Olympic zone benefited the most from the city cash. The Icona development, due for completion in 2008, is the most sought after investment opportunity, with the one and two bedroom apartments already selling quickly for around £340,000. Prestigious flats in Canary Wharf, which require low maintenance and are near to the City have also been targeted. The most exclusive is Pan Peninsula where prices start at £300,000.

“East London has seen an average property price increase of 17% since the result of the Olympic bid and it was hoped that, had Greenwich won the bid for a super-casino at the O2 - formerly the Millennium Dome - house prices in the area would have been boosted further,” commented Paul Smith. “Any disappointment is likely to be short-lived however, as Greenwich is already benefiting from the Olympics and the Thames Gateway regeneration project which plans to bring an extra 120,000 homes to the area by 2016.”

First time-buyer level slips

The level of first-time buyers saw a 1% drop to 26% of the market share in January as the 0.25% interest rate rise to 5.25% caused buyers to be cautious of making the step onto the property ladder.