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London’s great housing squeeze has worsened dramatically with prices and rents hitting new all-time highs.

Prices have surged since Christmas as buyers flood into the market, while rents are going up at more than three times the rate of inflation.

The average London home jumped in value by 2.5 per cent last month to a record £373,207, according to the Land Registry. Prices are now 7.1 per cent higher than they were a year ago.

The average rent rose nine per cent last year to £1,196 a month, more than twice the national figure, figures from the Government’s Valuation Office Agency revealed. Green Party London Assembly member Darren Johnson said: “It’s hurting our economy and pricing out a generation of renters.”

House prices rose in almost every borough but the biggest annual rises were in Kensington and Chelsea (12.4 per cent), Hackney (11.6 per cent) and Westminster (11.4 per cent.) It means the gap between London prices and the rest of the country is wider than it has ever been. Average prices for England and Wales as a whole rose one per cent over the year to £162,441 and are falling in much of the North and Midlands.

The number of multi-million-pound houses and flats sold in London is also recovering after being badly hit by uncertainty over George Osborne’s plans to raise more tax from buyers of £2 million-plus homes.

In November, the last month for which figures are available, 11 homes sold for more than £2 million, up 10 per cent in a year. The number sold for £1 million-plus rose 25 per cent at 437.

Agents said the London market more generally was boosted by a rise in first-time buyers as lenders made more 90 per cent mortgages available, and a resurgence in foreign interest. The slump in the value of the pound since the start of the year has made London property more affordable to European and Asian purchasers.

Rents rose fastest, at 11 per cent, for family homes with three bedrooms. Mr Johnson added: “We should copy the smart rent controls and security in countries like France and Germany where rent can’t rise faster than inflation, guaranteeing fairness and predictability for tenants and landlords.”