LONDON — One late-June morning in London, a real estate broker named Becky Fatemi eases into her black Porsche Cayenne and heads for Connaught Square, just north of Hyde Park.

As her sport utility vehicle turns into the square, Ms. Fatemi — who, by her own account, handled about 55 million pounds ($113 million) of home sales in 2006 — nods toward one of the Georgian town houses.

“This is where Tony Blair bought,” Ms. Fatemi said, the top producer at Foxtons Ltd., the biggest residential property brokerage in London.

Through Foxtons and another broker, Mr. Blair purchased the five-story house for 3.65 million pounds in 2004, when, as prime minister, he was still living on Downing Street. Ms. Fatemi, 31, says Mr. Blair’s place is worth as much as 4.7 million pounds now — a 29% increase.

Mr. Blair is no real estate savant. A confluence of powerful forces from low mortgage rates to Russian petro-riches to the teeming wealth of the City of London, Europe’s largest and most dynamic center of finance, has supercharged home prices across the British capital.

The average price of prime London homes, the ones brokers consider the most desirable, has soared 254% since 1997, when Mr. Blair’s Labour Party came to power, according to London-based real estate broker Knight Frank LLP.

Defying predictions that the market would sputter, that average rose 28.7% in 2006, the steepest increase since 1979, and then jumped 18% during the first half of this year.

These days, buyers who dillydally risk getting gazumped. That’s British slang for what happens when someone arrives on the scene at the last minute and offers a higher price.

The decade-long leap in prices has made London the most expensive city in the world for high-end homes — costlier per square foot than Monaco, New York, Hong Kong, or Tokyo, according to Knight Frank, which says prime London houses cost about 5 million pounds and prime flats run about 2.5 million pounds. The most-sought-after property in areas such as Kensington and Chelsea, the priciest of London’s 32 boroughs, sells for an average of 2,300 pounds a square foot, according to Knight Frank.

Comparable living space in Monaco, the world’s second-most- expensive locale, costs 2,190 pounds a square foot. Similar digs in No. 3 New York fetch 1,600 pounds a square foot, according to Knight Frank.

The unprecedented surge has brought with it unprecedented risks. Mr. Blair’s successor, Prime Minister Gordon Brown, must now contend with a host of dangers — from accelerating inflation to rising interest rates, to mounting mortgage debt — that could puncture the housing market and threaten the nation’s longest period of economic growth in 200 years.

The housing market hasn’t been this heady since the 1980s, when prices almost tripled. That boom, touched off by falling interest rates and rising stock prices, ended when a subsequent increase in inflation drove interest rates as high as 15%.

London home prices sank 27% from December 1988 to December 1992.

Now, the thunderheads are gathering once again. As the U.S. Federal Reserve battles a subprime mortgage crisis, the Bank of England is tightening credit to combat inflation. The British central bank has raised its benchmark lending rate five times since August 2006, pushing that rate to a six-year high of 5.75%.

Tightening credit will squeeze people who’ve gone deeper than ever into debt in order to buy homes. Since May 1997, the amount of British mortgage debt outstanding has ballooned, soaring 168% to a record 1.12 trillion pounds as of May 30, according to the Bank of England.

British homeowners have never been so stretched. A decade ago, first-time buyers typically took out mortgages equal to 2.4 times their annual salaries. Today, that figure has climbed to 3.2 times. About 120 billion pounds of short-term fixed-rate mortgages may have to be refinanced this year at new, higher rates.

London, long attuned to old money and social class, is increasingly a city divided by new wealth. The capital is being split between the rich, who can afford homes, and a growing number of ordinary folks who can’t. Laying out his agenda on July 11, Mr. Brown told Parliament that many people in Britain have been priced out of the home market. He vowed to build more low-cost housing.

“Putting affordable housing within reach, not of the few, but of the many, is vital,” Mr. Brown told Parliament.

No broker has fed the frenzy like London-based Foxtons, which has helped drive up prices and, in the process, its own commissions, by inflating home valuations, wooing buyers and sellers — and pushing agents to close, close, close.

This year, Foxtons itself, along with another British property broker, Countrywide Plc, was gobbled up. The buyer in both cases was the new power in global finance: private equity. London-based buyout firm BC Partners Ltd. bought Foxtons from its founder, Jonathan Hunt, in May for about 390 million pounds. New York-based Apollo Management LP bought Countrywide in May for 1.07 billion pounds.

Mr. Hunt’s exit is a bad sign, the former owner of London real estate firm Royston Estate Agents Ltd., which he sold to rival Douglas & Gordon Ltd. in May for an undisclosed price, Peter Nicholls, said. “When Jon Hunt sells, you know the market’s going to be in trouble,” Mr. Nicholls, 44, says.

Mr. Hunt declined to be interviewed for this story, as did the chief executive officer of Foxtons, Michael Brown.