Guru predicts City homes slump

HOME values in London will slump 20% over the next 12 months, sending shockwaves through the entire economy, claims one of Britain's most influential housing gurus.

Steven Bell, chief economist at Deutsche Asset Management, was one of the few forecasters correctly to predict the late-1980s property bust, when millions of people were trapped in negative equity.

He believes house prices in the capital will be driven down by the gloom sweeping the City, which is causing a collapse in the buy-to-let market, and an exodus of highly-paid foreign workers from the Square Mile.

A 20% fall would wipe £39,000 off the value of a typical London home, worth an average £195,000, according to the Halifax. That would shrink to just £156,000.

Bell is also forecasting a narrowing of the North-South divide in housing, with an increase of 20% in property prices in the North of England. 'London has 1.1m officially recorded foreign workers,' he said. 'Contrary to some stereotypes, many of them are highly-qualified professionals. A lot of them are heading home and it will have a big effect on the property market. People who came to work in London from the regions are also selling up and buying cheaper properties back in their home towns.'

He was not expecting a return to the 1980s crash. 'In the Eighties, interest rates doubled to 15%,' he said. 'Rates are now very low and may fall further.'