Prices in the capital have increased by nearly 10 per cent in as many months, and estate agents are predicting that they could go up by twice that amount in the coming year, as record City bonuses and a shortage of properties for sale inflate the market further.

Competition for the few available properties in the “right” areas is so fierce that houses are going for hundreds of thousands more than the original asking price, and buyers are having to submit sealed bids to secure their new home.

One leading West End agent had only four properties on his books this weekend and another reported an “unprecedented mismatch” of supply and demand. Agents also noted that there was a new wave of people — many of them with well over £1 million to spend — who wanted to “buy to live” in Central London, rather than “buy to let”. That put even more pressure on the housing stock as fewer homes were becoming available to rent. The result is that prices in Kensington & Chelsea have risen by nearly 2 per cent this month alone, with the average cost of a home in the borough now £648,100, according to figures released today by the property data company Hometrack.

Richard Donnell, Hometrack’s director of research, said: “Lack of housing is pushing up prices. This time last year, property in London was looking good value for money. The market in the capital was quite flat between September 2001 and September 2005, but confidence in the City and a rise in bonuses have acted as a catalyst for the bounce-back.”

The Centre for Economics and Business Research has predicted that City bonuses will rise by 18.3 per cent this year to a total of £8.8 billion, with an estimated 4,200 employees expected to receive more than £1 million. This comes after a report last week that the average salary for men working in the financial district had risen above £100,000 for the first time, with some enjoying pay rises of up to 21 per cent.

An influx of buyers from abroad is also having a big impact on the market in the capital. Ed Mead, a director of Douglas & Gordon, said: “Strong global economies and a raft of decent City bonuses meant there were lots of people wanting homes in London. Overseas buyers all want homes in Kensington, Chelsea and Belgravia; 75 per cent of our business in the Chelsea office comes from foreigners relocating to London.”

But even with prices rising so quickly, vendors remain unwilling to put their homes on the market, leading to a serious shortage of properties for sale. Some agents blame the rising cost of stamp duty for people’s reluctance to move. Patrick Aschan, of Cluttons in Chelsea, said: “The cost of moving is just too high. Five years ago you would spend a morning showing a buyer several properties. Today you are lucky if you can rustle up two or three.”

Other people appear to be holding back in the hope of cashing in even more once City bonuses are paid at Christmas, and buying agents are already gearing up for a busy new year. Rupert Bradstock, of Property Vision, said: “We have a record level of new clients. On that basis, I expect prices at the top end of the market to rise by between 10 and 20 per cent next year.”

The Woolwich is offering City workers loans now on the strength of next year’s bonuses, and some agents are encouraging them to take out such a mortgage to avoid an even tougher market next spring. Adam Stackhouse, sales director of Chesterton, said: “The market usually surges around March and April when bonuses hit bank accounts. Bonus time will be a hard-fought battle for very limited stock. Finding a way to beat the rush could mean the difference between getting the right house and missing out altogether.”

Across the country, Hometrack reports that prices have risen by just under 5 per cent in the past year, so that the average home now costs £168,600. The biggest rises outside the capital have been seen in Guildford, where prices rose by 1.5 per cent last month, and Gloucester, which experienced a 1 per cent increase in September. North Lincolnshire, Nottinghamshire, Co Durham and the London borough of Barking and Dagenham suffered slight falls.

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