London house price boom is over

By THIS IS MONEY
Updated: 19:00 EST, 7 July 2000

The property boom in London is over and average house prices across the country are at a standstill, according to the Halifax. Property values in the capital are falling for the first time since 1995. London prices have dropped 2.4% since April after rising 4% between January and March.

The average price of a London house is now £145,104, down from £148,586. The UK average is £84,422. Martin Ellis, Halifax group economist, said the market 'slowed significantly in the second quarter and it now looks likely that the first quarter marked the peak in the current housing market cycle'.

The four mortgage rate rises between September 1999 and February and the abolition of mortgage interest tax relief (miras) in April, are the key factors explaining the cooling in house price inflation, the survey said. The abolition of miras has added more than £700 to the annual mortgage payments of borrowers with £60,000 interest-only loans.

As well as London, there were price falls in Scotland (down 5.9%) and Yorkshire & Humberside (down 3.2%). The housing market remains strong in the South East (up 4.5%), South West (up 2.4%) and East Anglia (up 2.8%).

London property prices are still 19.5% higher than they were a year ago, and about double their 1995 level, and in the year up to April, they rose 29%. The UK average rise is only 11.3%. There are also signs of a decline in property sales in London and 'real concern over the lack of affordable houses in the region', the Halifax said.

Regional manager Jim McCook said: 'After such a strong run of house price inflation, it was inevitable the market would calm down. We have seen a slowdown over the last quarter and we are now experiencing something of a pause.

'This fall does not mark the start of a major shift in the region's housing market but represents the fact that purchasers have decided to say enough is enough for the time being on price rises.

'Confidence is still strong but the balance of power has shifted slightly in favour of buyers who are no longer prepared to pay silly prices. As a result, estate agents have more properties on their books and it is taking longer to sell them. We would not be surprised to see further moderate price falls in the capital over the coming months.'

Looking ahead, the survey said the economy remains in good shape, unemployment is falling and housing affordability, at a national level, also remains strong. Prices stand at a multiple of 3.6 times average earnings, according to the latest figures, which is slightly below the 3.7 average for the past 16 years.