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London property downturn is just the start, estate agents warn

Only then will investors feel they have the necessary safety net to commit to property in any meaningful way.

Latest figures from Knight Frank show prices in London saw falls of 1.7% during June, slightly ahead of the 1.5% fall recorded in May.

As a result, prices have now fallen for two consecutive months and are now 3.1% lower than three months ago, equalling the largest recorded quarterly fall in the index since 2002.

And Haart estate agents figures show property prices in London have fallen by as much as 14% during 2008.

'The fall in prices show that there can be no doubt that even property in prime Central London has been hit by the double whammy of the credit crunch and wider concerns over the global economy,' said a spokesman at Knight Frank.

The tightening of lending criteria and reduction in availability of mortgage finance is adding to the downturn. Research from the Bank of England shows transaction levels for house purchases fell 63.8% in May with just 42,000 approved.

But there is no gain without pain and estate agents believe London, like the rest of the UK has to go through this fall. 'Willing sellers are using price incentives to get deals tied up and it's no longer about location, it's all about value,' said James Hyman, a partner at Cluttons estate agents.

'A further drop in prices will bring value back to the market which will lead buyers to becoming more incentivised to commit to buy again,' he added.

Agents point out that buyers are shopping around. There is belief that those who do buy now will be in a good position when the market does recover.

Forced sales could be the catalyst which breaks the property deadlock in the London market, according to Cluttons. Financial constraints are set to be the early driving force behind many forced sales, as fixed-rate deals finish, jobs are cut and City pay rises fail to come to fruition.

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