Prime London property prices start falling for first time in 15 months, index shows

In line with what many analysts have predicted that prices in the UK will start falling back in the second half of the year, the Knight Frank Prime Central London Index for July shows that prices for prime London property fell in July by 0.5%, the first monthly decline since March 2009.
 
But it also points out that despite this month’s reversal, prices are still 23.4% higher than they were at their lowest point last March. However, prices are now 6.1% below their March 2008 peak.
 
The index reveals that price falls have affected all parts of the capital with the exception of Mayfair, which posted 0.2% growth. The main problem facing vendors in the capital is over ambitious pricing on stock which in some cases means that asking prices are between 5% and 10% higher than buyer expectations, the report says.
    
‘The slowdown in the London market has been anticipated for several months, the bounce in pricing on the back of low interest rates and weak Sterling had driven prices close to peak levels, and in some cases above these levels,’ said Liam Bailey, Knight Frank’s head of residential research.
 
‘The market experienced a severe lack of houses for sale during late 2009 and early 2010, which helped to push prices higher. Since May demand has fallen back by 8% while anecdotally price rises have begun to encourage potential buyers to think about renting again and supply has also risen by 7% as vendors look to take advantage of higher prices,’ he explained.
 
He said that a key indicator of the health of the market is the ratio of asking-to-achieved prices, which hit 97% in May and which is now 95%. Most agents across the capital believe that asking prices are between 5% and 10% higher than where the actual market is at the current time.
 
‘This month’s price fall is only one piece of evidence, but allied to the decline in asking-to-achieved prices we believe that our forecast for around 5% price growth in central London for the whole of 2010 will be borne out, which suggests that prices will fall by around 3.2% during the final five months of the year,’ explained Bailey.
 
He believes that the healthiest parts of the market are the entry level end and the very top end with prices only slipping by 0.2% in the sub £1 million and the £10 million plus markets. The weakest markets are the mid range £3 million to £5 million sectors, which had seen the biggest price rises over the past 15 months.