House prices in Estonia are growing faster than anywhere else in Europe, a new survey has found.

According to the Royal Institution of Chartered Surveyors (RICS), Estonian house prices rose by a healthy 28 per cent last year.

Denmark, with price growth at 22 per cent, finished in second place, followed by Spain with 15 per cent and Sweden with 12 per cent.

France, which in 2004 was Europe's fastest-growing property market, came fifth with just over a 10 per cent gain.

Ireland, Poland and Belgium all recorded house price growth of about 10 per cent in 2005.

The RICS survey looked at the rates of house price growth in 18 European countries, analysing trends across the continent in areas such as inflation, building activity, mortgage markets and turnover.

"After several years of high growth in Europe’s Mediterranean regions, fuelled by the second homes boom and strong economic growth, countries in the north of the continent are starting to catch up, in what remains a generally buoyant European market," RICS said in the report.

Prof Michael Ball, author of the RICS report: "Northern Europe saw some of the strongest house price rises last year, so the centre of gravity of Europe's house price inflation seems to be heading north."

"Of the countries surveyed 12 had inflation at 7 per cent or more, with seven of these above 10 per cent.

"This buoyancy is in part due to mortgage lenders taking a more relaxed approach to loans criteria; a sign of growing acceptance of the probability of price growth across the continent."

In the UK, house prices rose by just 2 per cent, while prices in Germany fell by 2 per cent.

Professor Michael Ball, author of the RICS report, said: "Northern Europe saw some of the strongest house price rises last year, so the centre of gravity of Europe's house price inflation seems to be heading north.

"2006 contains growing risks for housing investors with rising interest rates in the euro zone and fears of greater currency volatility to contend with. Even so, the thirst for cross-border European residential investment is unlikely to be quenched in 2006."

Milan Khatri, RICS chief economist, added: "We expect the European house price boom to run into its eighth year in 2006, with the market supported by a clear upturn in economic activity and income levels."