Fears for housing market after London prices cool

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House prices in London are falling, according to a new report that will fuel fears Britain's runaway housing market is on the brink of a sharp slowdown.

House prices in London are falling, according to a new report that will fuel fears Britain's runaway housing market is on the brink of a sharp slowdown.

The asking price for the average property in the capital fell by 1.2 per cent in July and 0.7 per cent this month, according to the property website Rightmove. The survey points to a more severe collapse at the luxury end of the market with prices of detached houses dropping 7 per cent in August alone.

But the housing boom across the country shows no sign of slowing as mortgage lending surged to arecord high in July.

The Rightmove survey is the first in the UK to measure the price that sellers are seeking and claims to spot trends six weeks before the big mortgage lenders. It said the rate of growth of house prices had slowed for four consecutive months, with prices up only 0.8 per cent in August, down from a peak of 4.5 per cent in April.

Ed Williams, managing director of Rightmove, said: "The boom conditions of the past few months have cooled off and nationally the rate of growth has calmed towards more sustainable levels."

Its figures showed the traditional north-south divide has reversed with the strongest monthly rises in Wales, with 5.3 per cent, East Anglia, 5.4 per cent, and Yorkshire, 4 per cent.

In contrast there are signs that the slowdown in London is starting to ripple out into the Home Counties. Prices in the South-east fell 1.8 per cent in August, again driven by falling prices for detached homes.

Yesterday's survey carried echoes of the last major housing crash in the early 1990s, which started in London.

However John Wriglesworth, a housing economist, said this correction would probably be confined to the capital. "London has seen the biggest rises so it will see the biggest easing off. But I am confident that the market has not turned to recession. It is a national slowdown and a return to normality but a correction in London."

A survey from the Royal Institution of Chartered Surveyors also hinted at a slowdown, saying house prices rose at their slowest pace for five months in July. The number of homes for sale rose for the first time since December while enquiries from new buyers fell, meaning supply was increasing while demand was slowing.

Ian Perry, RICS' housing market spokesman, said: "This month sees further evidence that the runaway house prices seen earlier this year are coming to an end. Sellers can no longer overprice and wait for the market to catch up, as buyers are becoming more streetwise and looking for a good deal."

But both RICS and Rightmove said prices were still on track to show 20 per cent growth for the year and City economists said the market would stay strong while mortgage rates were so low.

This optimism was supported by figures from the Council of Mortgage Lenders showing that the total volume of loans hit a new record in July. The big high street banks lent out £21.8bn in July, up 41 per cent on the year and compared with £17.1bn in June. Loans numbered 147,000, the highest since monthly records began in 1998.