Credit crunch halts sales boom in 'banker belt'

The once soaring "banker belt" property market of central London has come to a juddering halt.

Estate agents say there has been a dramatic turnaround in sentiment in the most expensive neighbourhoods of the capital.

Only six months ago, multimillion-pound central London homes were flying off agents' books and websites had to be updated hourly.

Now Knight Frank has slashed its forecasts for prices next year, despite last week's 0.25 per cent interest rate cut.

It is predicting that central London prices will rise by no more than three per cent over the next 12 months. In some areas they could be halted altogether.

As recently as August, prices were rising at an annual rate of 38 per cent.

Liam Bailey, head of research at Knight Frank, said: "Our view is that prime London will cease to lead the UK market for the first time for two years.

"During the summer, at the height of the central London boom, prices were rising by over three per cent per month, with 3.9 per cent recorded for July alone.

"But the credit crunch has reversed market sentiment. In early summer we were in the midst of the strongest sellers' market for nearly 30 years. Now the time for over-ambitious pricing has effectively ended."

The most prestigious properties costing more than £10 million will be protected because they are invariably bought for cash, often by foreign buyers.

But this year's less generous round of City bonuses and the threat of job losses at major investment banks means the sub-£6 million property bracket is vulnerable. Howard Archer of analysts Global Insight said: "I suspect the London house market will be increasingly affected higher up by lower and fewer financial sector bonuses and likely job losses in the City.

Even those who will still be receiving bonuses will be reluctant to invest in a stagnant property market, in addition to becoming more cautious in the face of the weaker UK and global economic outlook and the continuing credit crunch and general turmoil.

"A significant number of international buyers in the under-£6 million price range are also likely to be affected by worsening economic situations in their own countries."

Prices for properties costing £6 million or more rose by three per cent in the three months to last month, compared with only 0.3 per cent for properties in the £1-to-£2 million bracket.

"This illustrates the resilience of the most expensive properties through the autumn market," said Mr Bailey.

"Demand from oil and commodity-rich countries - Russia, Kazakhstan and the Middle East - remains strong."

• House prices in London continued to rise in October, government figures showed today. The Department for Communities and Local Government prices for completed sales rose 17.7 per cent year-on-year. The figures are before the full impact of the credit crunch took hold. Nationally, the average property price increased by only 0.1 per cent on the previous month, suggesting a slowdown. Flats fell by 0.7 per cent and terrace houses by 0.4 per cent, but this was offset by a 0.8 per cent price rise for detached homes.