House Prices Start To Fall In London

Property pundits claim that the UK is currently experiencing a two-tier property market. They admit that that most of the country is experiencing a slowdown, with price falls in some parts of England. But they also say that house-price rises are still strong in London and parts of the South East.

Price rises have been particularly pronounced in upmarket parts of the capital, driven by the vast wealth generated by the City and the very deep pockets of foreign buyers. So, on the surface, everything is hunky dory for London homeowners.

However, if we scratch below the surface, we find that property prices have been falling in certain parts of the capital. Using quarterly data from the Land Registry recording house sales between April and June, here are the cracks that I found. (Note that there can be a considerable time delay before some housing sales are recorded on the Land Registry, so the following figures reflect sales early in the year, rather than in the middle of 2007.)

In the past quarter, house prices have fallen or remained static in the following London boroughs:

All Properties

Prices have fallen in the millionaires' playground, and recent turmoil in world financial markets suggested that there's more pain to come in the City when those huge annual bonuses are slashed. Also, even in swish K&C -- the richest borough in the entire UK -- house prices failed to rise over this quarter.

Detached Properties

Sales of detached properties are few and far between in London, largely because of a shortage of space to build large family homes. Hence, house-price changes for these premium properties are subject to fluctuations. For example, the Land Registry lists only three detached properties to change hands in Hackney in this quarter. Nevertheless, as you can see, prices for top-end properties have fallen in ten London boroughs for sales recorded at the Land Registry between March and July:

Semi-Detached Properties

Again, some of the figures below have been skewed by virtue of only a few sales being recorded. Nevertheless, prices of semi-detached homes have fallen in these seven boroughs:

Ignoring the bizarre swings in the City of Westminster and Tower Hamlets, there seem to be clear signs of recent weakness in the property markets of Lambeth, Kensington and Chelsea, and Barking and Dagenham.

Terraced Properties

Terraced homes are the bread-and-butter business of estate agents, so let's see how they've fared in Q2 2007:

Again, we can safely ignore most of the huge shift in Camden, but the City of Westminster and leafy LBRUT look a little shaky. By the way, it's worth noting that prices of terraced properties have fallen by 1% over the past year in Camden, which may come as a surprise to homeowners in that area.

Flats

When weakness starts appearing in the property ladder, it's usually the lower rungs that begin to crack first. However, the average price of a flat has dropped in just two London boroughs so far:

Summary

Of course, the good news is that historic yearly house-price inflation is still in double digits in most London boroughs. However, after accounting for general inflation (the Retail Prices Index is currently 4.4%) average prices have fallen in real terms over the past year only in Harrow ( up 3.7%) and Hounslow (up 3.8%). Then again, I suspect that the data from our survey suggest that the rises won't continue much longer.

What's more, I'd bet any money that estate agents in Harrow and Hounslow won't be passing on the news of average 'real' (after inflation) falls in their areas to potential sellers and buyers!

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