House crash fears ease

Fears of a housing crash in London eased today with a survey showing the property market on course for a soft landing.

The survey also suggests that property values in the capital are not as extreme as those at the end of the last boom in the late Eighties, which was followed by the disastrous "negative equity" bust of the Nineties.

The findings are in stark contrast to some of the more gloomy recent predictions for the London market. Nationwide's chief economist, Alex Bannister, said: "It is clear that London and the South-East look considerably more affordable relative to the Eighties peak than the North, North-West and Wales."

London prices are 11 per cent higher than a year ago and are now forecast to show an annual rise of nine per cent by the end of 2004, despite five rises in interest rates from the Bank of England.

The average price of a home in London stands at ?237,818, according to the Nationwide survey. First-time buyers in London are paying just over ?208,000 on average.

The survey also shows a dramatic turnaround in the pattern of house price increases around London. Expensive areas such as Islington, Wandsworth and Hammersmith and Fulham, which were seeing no increases or falls a year ago, are now showing healthy double-digit rises.

However, Newham, which was last year's property market star in London, has fallen to the bottom of the table with no growth.

The figures suggest that the return of City bonuses and a "catch-up" effect after two years of stagnation has boosted the more upmarket areas.

However, there was a more sombre word of warning from the IMF today as it said that further interest rate increases are needed to tackle inflationary pressures in the British economy.

The IMF advice runs in stark contrast to a growing feeling in the City that interest rates are already near their peak given a succession of rises in the past year to 4.75 per cent.

The IMF said that the "central risk" to the economy remained "an abrupt adjustment in the housing market".

The Nationwide survey warns that a shortage of first-time buyers had made trading up harder.

Mr Bannister added: "Trading up is now at its hardest for more than 10 years because of the price gaps between the different levels of the market and the lack of first time buyers."

The number of sales has fallen dramatically from 125,000 a month in the spring to only 96,000 now. The record decline in mortgage advances recorded by the Bank of England yesterday also suggests the number of sales will continue to drop.