House prices are on course for double-digit growth on an annual basis next month for the first time in three years, Britain’s biggest building society said.

The forecast by Nationwide came as the lender reported a higher than expected 1.2 per cent average price increase in January, taking the rise to 8.6 per cent since the same month last year. Reports due out on Monday are expected to reinforce the view that prices have strengthened and to show that economists have revised their forecasts upwards for this year, based on signs of better mortgage lending.

Martin Gahbauer, chief economist for Nationwide, said: “Unless there is a fall in property values in February, annual house price inflation is likely to move into double-digit territory next month.”

An annual double-digit rise next month would be the first for almost three years — the last time that Britain had year-on-year house price growth above 10 per cent was in May 2007. The average house price is now £163,481, up from a low of £147,746 in February last year but still some way off the October 2007 peak of £186,044, according to Nationwide.

Separate data from the Land Registry, based on all housing transactions in England and Wales and therefore lagging behind Nationwide’s index, which is based on its mortgage lending, showed that in December annual house prices rose for the first time since May 2008. Prices rose by 0.1 per cent over the month — the eighth consecutive monthly increase, according to the official measure. The Land Registry found big regional variations in growth. London had the highest annual change, with a 6.1 per cent rise over 2009, while Wales had the biggest fall, at 2.5 per cent.

Proof of a return to confidence in the capital came yesterday in the form of a return to mega-mansion development. Marcus Cooper, the North London developer, announced that it had gained planning consent for a £100 million home facing Regent’s Park, Central London. Camden council gave consent to build the 50,000 sq ft property, which will have ten bedrooms, vast entertaining spaces, two additional staff houses, a cinema, a gym, a pool, office facilities and a car park.

Marcus Cooper is noted for good timing. It made millions of pounds two years ago from redevelopment of the 40,000 sq ft Witanhurst House in Highgate — London’s second-biggest house after Buckingham Palace — which it bought for £32 million in 2007 and sold in July 2008 for more than £50 million, shortly before the collapse of Lehman Brothers and the property market crash.

The new project is an example of a trend among London property professionals in response to rising prices and soaring demand from foreign investors: the conversion back into residences of grand period homes turned into offices over the past 100 years. Some of the biggest developers in London, including Grosvenor, which owns much of Mayfair, and Covent Garden-based Shaftesbury, have been turning centrally located buildings back into dwellings.

Nationwide said yesterday that the housing market would remain relatively independent of other economic measures, such as unemployment and negative wage growth, but would be more dependent on whether the Bank of England raises interest rates this year.

Mr Gahbauer said: “With negative real earnings growth, the future path of interest rates becomes even more critical for the housing market, particularly with a growing proportion of the mortgage stock now on variable rate deals. The consensus view is that interest rates will remain unchanged until the final quarter of 2010. Inflation trends in 2009, however, are starting to call into question the validity of this view.”

Howard Archer, of IHS Global Insight, said: “A modest relapse in house prices is likely at some point in 2010 and they may well be essentially flat over the year as a whole.” By Rebecca O’Connor, Francesca Steele – The Times