Capital gains on their way to London

LONDON'S homeowners suffered more losses in the value of their properties in December, but brighter times may be just around the corner.

Estate agents say that, after a lull in sales activity in the run-up to Christmas, the new year has brought a surge in buyer interest and even first-timers are trickling back to the market.

Hopes that interest rates could start to fall later this year may be behind the new-found optimism. The return of bumper Christmas bonuses at the top-end of financial markets is also expected to lead to a buying spree.

Estate agent Haart, which has about 100 branches in and around London, said house prices fell 1% in December following a 2% decline in November. Meanwhile, rival Knight Frank said prices in the prime central London market - which covers areas such as Chelsea, Belgravia, Regent's Park and Mayfair - were down for the fourth month in a row, falling 0.1%.

London bore the brunt of the housing slowdown last year but experts have tipped it to outperform the national market in 2005, Nationwide forecasting 3% price gains against 2% for Britain.

Russell Jervis, managing director of Haart, said: 'We are now seeing a surge in activity, with many of our offices across London reporting a significant increase in enquiry levels compared with last month. Having taken time out to see what happens to the market, our customers are now keen to get moving.'

Noel Flint, a partner in Knight Frank's Sloane Avenue office, said: "The first quarter usually sees a period of increased activity and the next few months could therefore be decisive, with London perhaps setting the pace for the South-East.'

Jervis said more-realistic prices were helping first-time buyers get a foothold on the ladder again, their share of the market rising for the second month in a row in December to 19.3%.

The central London lettings market continues to recover, with rents 3.9% higher than a year ago as many would-be homeowners rent temporarily in the hope prices will collapse.

There has been a sharp increase in the number of American tenants over the past three months, but the number of Europeans has slumped, Knight Frank said.