HOUSE prices in London’s smartest neighbourhoods will jump by 5 per cent next year, according to Savills, the upmarket estate agent.

Jim Ward, director of residential research for Savills, said that already there were signs of price growth in prime Central London, which includes areas such as Mayfair, Chelsea, Kensington and Notting Hill. Savills said that price rises in the capital would be fuelled by bumper City bonuses and a strong outlook for London’s financial markets.

Mr Ward said that prime Central London districts would lead the recovery in the housing market, with prices across the rest of the capital and the South East of England expected to rise about 3 per cent.

The positive outlook for London and the South East contrasts with the rest of England and Wales, where prices are expected to drop by up to 5 per cent. The worst falls are expected in Yorkshire and Humberside and the North East. Prices in Scotland are expected to carry on growing, but by only a modest 2 per cent.

Mr Ward said that house-price falls were expected in regions that recently had experienced strong price growth. “This is a sign the froth is coming off the top of the market,” he said. He insisted that there were no triggers for a housing market crash, arguing that with mortgage arrears and repossessions low, employment still robust and interest rates heading down, there was room for price growth.

Mr Ward said that he expected prices to pick up in all regions within three years. “We have been anticipating a soft landing in the housing market for some time, and this seems to be what we are now seeing, as signs of the next house-price cycle emerge,” he said.

“This next cycle will be characterised by house-price growth in line with income growth and relatively low turnover.”

Savills repeated its forecast that rule changes, which will allow investors to put residential property into Self-Invested Personal Pensions (Sipps) from next April, will shore up the weakening buy-to-let market.

Savills’s comments came as Knight Frank, a rival estate agent, reported that prices of London homes worth more than £1 million had leapt 1.1 per cent in October, the biggest monthly rise since February 2004.

A Propertyfinder.com survey out yesterday said that househunters and sellers expect price rises over the next 12 months.

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