London property prices surged by 7.4 per cent at the start of this year, the fastest annual rate of growth since 2016, according to new figures today.Mortgage lender Nationwide said the average cost of a home in the capital hit a new all-time high of GBP518,333 in the first quarter.It means that the average London home has put on more than GBP58,000 in value since the start of the pandemic two years ago.The market was last rising faster in the second quarter of 2016 immediately ahead of the Brexit referendum when prices were going up by 9.9 per cent.Prices rose even faster in the commuter belt outside London hitting an average of GBP422,428, up 11.4 per cent, in the “Outer Metropolitan” region.A shortage of flats and houses on the market and post-pandemic pent up demand from buyers was largely behind the surge, according to the lender, which said the number of mortgage approvals in February was 71,000, nearly 10 per cent higher than before the pandemic.Nationwide’s chief economist Robert Gardner said: “The continued buoyancy of housing demand may in part be explained by strong labour market conditions. In recent months, the unemployment rate has been trending down (to 3.9% in the three months to Jan) from its low levels. Although wage growth has been rapid, it is still below inflation. Potential homebuyers may have been able to raise a deposit due to the significant savings they made during lockdowns. Due to the effects of Covid on spending patterns, we estimate that households have accumulated an additional GBP190 billion in deposits since the start of the pandemic. This is approximately GBP6,500 per household. However, it is important to note the uneven distribution of these savings, with wealthier households gaining more. Guy Gittins (chief executive of London agents Chesterton) stated that “not even half way through March, we had already seen a spike in buyer inquiries and sales compared with the same period last year. “Historically, spring signals the beginning of increased market activity and a surge in property sales. This will likely be the case again in 2019, especially since strong buyer demand is driving the capital’s average price of a property higher, making it more attractive for sellers. Coreco’s managing director Andrew Mortlake said that the key driver of activity is the desire of people to leave the rental market where prices can be quite high. Although London remains behind the pack in terms regional price growth, it is beginning to gain more momentum. “But some warned that the heat is starting to leave the market amid rising mortgage rates, the cost of living squeeze and growing nervousness over the impact of the conflict in Ukraine. A buyer pulled out of a seven figure purchase because “something’s up in the legals.” People are withdrawing from transactions in the late stages of transactions because they have changed their minds. “Down valuations are an increasing problem, and buyers are not ready to shrug them off and proceed anyway, unlike last year. Although these incidents are not a flood, they indicate that the market is starting to fall from the heights of sky-high confidence, as concerns about the cost of living and war in Europe, as well as record-high property prices, start to bite.