Central London house prices rise fastest in three years

There were further signs of the capital's housing market strengthening today with central London house prices rising 3.2% in February - the strongest growth in almost three years.

Average house prices in central London have risen by almost a fifth in the last 10 months, and are only 1% below the market peak of March 2008, according to estate agency Knight Frank.

It said homes costing £5 million or more were selling for as least as much as before the recession, and that low interest rates and the weak pound had drawn foreign buyers to the capital.

"Price falls in the year to March 2009, at 24%, created good value in London and buyers began to bid prices higher," said Liam Bailey, of Knight Frank.

"Foreign demand has led the market, with 45% of £2 million-plus purchases going to non-UK buyers over the past 12 months."

He put the sharp price rises, particularly in expensive areas, down to a dramatic shortage of homes on the market - 22% fewer than last year.

"At the very top of the market we have begun to see increasing examples of properties hitting or exceeding peak prices again - especially in Mayfair, Kensington, Holland Park and Knightsbridge, where supply of excellent properties is very thin," he said.