Central London house prices have leapt 26.6 per cent this past year, the biggest surge since the property market peaked in the late 1980s, according to a survey.

In November, the price of a home in Central London climbed 2.8 per cent — the ninth month this year that prices had risen by more than 2 per cent, according to Knight Frank, the estate agency. It attributed the rise in prices to a “sharp demand in growth met with an equally sharp downturn in supply” over the past 18 months.

Liam Bailey, Knight Frank’s head of residential research, said that the agency was already seeing increased interest from City bankers optimistic about bonuses this year. Viewings last month were up about 40 per cent from a year ago, he said. Viewings tripled from December 2005 to March 2006, when bankers’ bonuses were paid.

The agency said that prices would rise 12 per cent next year if banks do award the record £9 billion total in bonuses that is expected after a year characterised by a flurry of takeovers and robust stock markets.

Rightmove, the property website, said that the average price of a property in the UK had risen by 13 per cent to £221,751 in the year to December, although there had been a small seasonal fall in prices last month.

Price rises are already beginning to deprive a generation of home ownership. In its latest survey of household finances, the Bank of England has found a sharp drop over the past two years in the number of people aged 25 to 34 who have mortgage debt.

An article in the Bank’s latest Quarterly Bulletin, published today, finds that only about 40 per cent of this age group now have debts secured on their home, compared with 60 per cent in 1995 and 2000. Matt Walderon and Garry Young, authors of the article, suggest that first-time buyers are being priced out of home ownership by house prices consistently rising faster than pay.

However, there was no further drop in the proportion with mortgages between 2005 and 2006. The proportion of people aged 35 to 44 with mortgages has also fallen, less drastically, from about 70 per cent to just below 60 per cent.

The latest survey, like its predecessors, suggests that problems with servicing household debt are severe for some people but that most people’s debts are covered by income and assets. Debt, therefore, remains more of a social problem for the families affected, mainly poor people, rather than posing a threat to the economy or to the banking system.

The survey has, however, found a steadily rising proportion of people having problems with making their mortgage payments. This has risen from less than 5 per cent in 2003 to 7.7 per cent this year.

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