Now developers go for the gazump

House prices are rising at their fastest rate for two and a half years a new survey reveals today - but this comes with the disturbing news that property gazumping is back with a vengeance.

A report by the Royal Institution of Chartered Surveyors says the price rises are fuelled by a severe property shortage, with many more buyers than sellers. A second survey of 900 estate agents, by residential property company Hometrack, shows that London property prices leapt by a massive 2.5 per cent last month.

Latest evidence of gazumping is indicated by a new trend in which property developers gazump their own customers who have reserved flats so that they can remarket them for inflated prices.

Gazumping occurs when an offer on a house is accepted, and the buyer proceeds to spend time and money on the deal to discover, sometimes weeks later, that a higher offer has been accepted.

Current laws require estate agents to pass on all offers to the owner, so they cannot prevent gazumping.

Housebuilders are now gazumping their customers to get a higher price. Buyers pay "reservation deposits" of up to £1,500 in return for what they think is a guarantee they can buy at the agreed price. But some unscrupulous developers then decide the price they have agreed is too low and allow the agreement to lapse so that they can remarket the property for a price higher by tens of thousands of pounds.

The Housebuilders' Federation declined to comment on gazumping "pending inquiries into the problem". However, George Sell, editor of the housebuilders' magazine Show Home, said: "Builders who do this are shooting themselves in the foot. By undermining agreements they are harming themselves and their customers."

The practice is fuelled by rising prices, as revealed by today's Hometrack report showing May's 2.5 per cent jump follows gains of 1.7 per cent in February, March and April and takes the increase for the year to date to eight per cent - equivalent to an annual rate of more than 19 per cent. The average price of a home in London now stands at a £225,100, nearly double the £129,000 national average.

John Wriglesworth, Hometrack's housing economist, said demand was being fuelled by the lowest interest rates for 50 years. He said: "There is also evidence that people are advancing their purchasing decisions due to worries about future house price rises. The 'get in now' mentality has returned for the first time since the 1980s."

As a result, he said he was lifting his full-year house price inflation forecast from 10 per cent to 13 per cent.