London House Prices Slip

London house prices have shown signs of slipping for the first time this year. Asking prices in the capital are often seen as the engine of the property market across the country.

The last 12 months have seen five interest rate rises, taking the rate from 4.5% last August to 5.75% currently. Other regions showing a distinct market chill are the West Midlands, North of England, and the South West.

There has also been a drop in the number of properties coming onto the market. One of the reasons for that could be the introduction of the Home Information Packs at the beginning of August, at a cost of around £500 a time. Industry leaders believe this will have stopped some people coming to market. Rightmove counted ony 148,000 properties were put up for sale during the last month in England and Wales - the lowest level since the beginning of the year. Meanwhile, the average time taken to sell a house rose to 85 days, up from 80 days in July.

First-time buyers have watched house prices grow to such an extent in recent years that most of them have been priced out of the market, and are having to wait much longer before they get onto the first rung of the property ladder.

Any price drop in London is seen as significant as homes in the capital have previously seemed immune to falls seen elsewhere in the country. London has seen a steady flow of immigrant workers, rich foreign buyers and a rash of cash to City workers in bonuses. Coupled with a shortage of property, this has helped to maintain an upward push on property prices.

Miles Shipside, commercial director at property experts Rightmove, thinks the situation may be changing. He said:“This fall is the first we have seen for some time and is an early warning signal that even the buoyant London economy is susceptible to market forces. The fall was only slight, at just 0.1%, but has to be seen against the fact that London prices have risen by an average of 2% a month for the last 12 months.” Rightmove believes the situation in the capital will be reflected across the rest of the country.

In London the average asking price is now £394,268, up by 23.4% in 12 months, but down by £462 on last month.

Rightmove also saw falls in West Midlands (2.2%) and North of England (0.6%), while the South West was unchanged.

It may be that there is now a shift from a seller’s market to a buyer’s market in many parts of the country.

The chaos in the financial markets in the past two weeks may also signify greater problems to come for mortgage owners, as it could mean less access to good value mortgages. There may be an increase in mortgage rates, without the Bank of England having to raise its own base rate.

Rightmove reports that the average asking price has gone up by 12.8% in the last year, but predicts that it will probably come down to 3 or 4% in future months. This, Mr Shipside believes, will lead to a more sustainable market without the need for further interest rate rises.

Tom Smith
24th August 2007

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