House price growth in prime central London is at its strongest for 27 years, according to residential research by Knight Frank. During 2006 prices grew by a staggering 28.6% with growth of over 2% seen in 10 out of the 12 months.

According to Knight Frank low supply and high bonuses fuelled demand throughout the year, encouraging increasing numbers of potential purchasers to make offers. ‘Annual property price growth has now exceeded the levels experienced in the boom of the late 1980s,’ said Liam Bailey, Knight Frank’s Head of Residential Research.

This year’s bonus money, forecast to be awarded throughout January, has already started making an impact on the market. Figures show that the proportion of prospective purchasers making an offer on property has increased by eight percentage points since November to over 20%. ‘Much of this demand is due to people wanting to find a property before bonuses are distributed,’ said Mr Bailey.

Kensington, Chelsea and Belgravia have been consistently the most popular areas with property prices experiencing an average growth of approximately 4% in the month of December.

The severe supply shortage has forced buyers to delve further into their pockets. ‘Our price band analysis shows that the majority of growth has been in the £4 million+ market as shortages of stock continue to drive prices upwards,’ explained Mr Bailey. ‘But we anticipate stock levels to improve in the new year as people return to the market’.