Prices fall for capital's most expensive homes but rises hit first-time buyers

Owners of luxury homes may be feeling the pinch, with the residents of London's yuppie strongholds, Islington and Clapham, faring worst.

The Land Registry, which collects details of all home sales, has picked up a sharp drop in the prices being paid for detached homes in some boroughs in the capital.

For example, the average selling price in Islington, the part of north London where Tony Blair lived before he became Prime Minister, has dropped from more than £750,000 at the end of March to £576,000 three months later, a fall of 23 per cent.

The pattern is mirrored in Ealing, west London ­ where the average price fell by 9 per cent between the first and second quarters of the year ­ 13 per cent in Merton, 9 per cent in Wandsworth, which includes Clapham, and 6 per cent in Lambeth ­ all areas south of the Thames. Analysts have warned that a bubble has built up over recent years as a booming economy delivered six-figure bonuses to hundreds of City workers every year. But the collapse of the dot.com boom and the resulting crash on the stock market has meant the stream of bonuses has dried up.

Meanwhile, a recent surge in prices at the bottom end of the market has put the property market beyond many first-time buyers.

One estate agent in north London said: "They have run out of first-time buyers in Islington and the only thing we can offer is council flats.

"We are telling sellers they are going to have become more realistic about the prices they set if they want to sell their home. Otherwise the market will stagnate."

Separate figures from the Office of the Deputy Prime Minister, John Prescott, show that the market for luxury homes has virtually ground to a halt.

While the annual rate of price rises for homes in the top quarter of the market has slowed from 20 per cent to just 3 per cent over the past two years, homes at the bottom end has seen an acceleration from 3 per cent to 17 per cent.

Analysts warn that any downturn in the market would start in the capital and spread out. However there was little sign of a slowdown from the Land Registry report, which showed prices rising almost 14 per cent over the year to June compared with 11 per cent in March.

All regions of England and Wales saw a rise in prices, with East Anglia topping the table with 19.8 per cent and the slowest being Yorkshire and Humberside with 11 per cent.

The number of homes sold for more than £1m jumped to 705 in the three months to June compared with 516 the same period a year ago ­ an increase of 37 per cent.