Homeowners in London will see the value of their properties fall in real terms next year for the first time since 1995, the Halifax bank warned yesterday.
The UK's largest mortgage lender said it expected prices in the capital to rise by only 2 per cent next year, compared with 5 per cent for the UK as a whole, in a reversal of the traditional North-South divide. That would be the first time for eight years that prices in London will rise more slowly than in any other region and would be the worst performance since 1995 when they fell by 1 per cent.
More significantly for households, City economists expect inflation to be 2.3 per cent next year, which would mean that London house prices will rise by less than the cost of living – meaning a fall in real terms.
That could be a psychological blow to the market, which has become used to super-inflationary price gains over the past five years. The average price of a home in parts of London has risen as much as 40 per cent a year during the recent boom.
Martin Ellis, group economist at Halifax, said the slowdown in London house price rises, from 15 per cent in 2001, would largely be driven by the fallout from the global slowdown.
"City bonuses are clearly expected to be lower than they have been in the last couple of years and that will hit the top end of the London market and percolate through to the rest of the country," he said.
He said falling share prices, which have lost an average of 18 per cent of their value this year, meant that homeseekers no longer had the assets to fund a house purchase.
Mr Ellis said another factor was the recent strong price rises in the capital, which had made London houses unaffordable for first-time buyers. "That will constrain demand over the coming year," he said.
In contrast, Yorkshire and Humberside, which achieved a rise of only 1 per cent last year, would lead the UK with 7 per cent rises. The North of England as a whole would enjoy growth of 6 per cent.
Overall the Halifax believes prices in the UK will grow by 5 per cent in 2002, compared with 11 per cent this year.
The Royal Institution of Chartered Surveyors (Rics) said it expected house prices to rise 6 per cent next year compared with its figure of 10 per cent in 2001. Rics said the housing market would be hit by the economic slowdown but supported by low interest rates.
Milan Khatri, its chief economist, said this combination would reverse towards the second half of the year as stronger economic growth forced the Bank of England to raise interest rates.
Both forecasts are in line with the Nationwide building society, which on Thursday forecast that house price inflation would slow to 6 from 12 per cent.Reuse content