UK property prices to fall by 25% but London will see steeper price drops

Residential property prices are still on track to fall by at least 25% by the end of 2009, according to the latest forecast published today by Savills. No recovery is expected before early 2010.

Its expectations, first voiced in June, that prices would fall 25% from their peak in 2007, remains generally the same but prime property in central London is now predicted to fall by 30%.

'The state of the market today vindicates the tough line we took earlier in the year. As early as April we had taken a significantly more bearish position than many commentators, particularly those within the property world. There are no immediate signs of a recovery, but we do not anticipate a further deterioration in this position,' said Yolande Barnes, head of residential research at Savills.

However, property prices are expected to fall further in London because of the declining City sentiment, job and income security, which have all plummeted in the past fewmonths.

Savills remains committed to its published recovery forecast and is confident that the prime markets, and the South East in particular, will lead that recovery from early 2010.

The bottoming out of these markets will be the key indicator that the worst is over for the entire residential sector.

'The big question is for how long will the markets bump along the bottom? Falls of 25% will rapidly restore affordability and this, combined with the prospect that cuts in interest rates will progressively cause the cost of mortgage finance to fall, will set the platform for recovery,' said Lucian Cook, Director Savills research.

Although there may be signs of recovery in 2010 no momentum is expected until 2011.