House prices drop 5%

House prices in the capital are continuing on a downward spiral, new figures reveal.

The biggest loser is Kensington and Chelsea, where the average asking price is down by a massive £96,309, or 14 per cent. In Hammersmith and Fulham prices are down by 11.5 per cent, an average of £52,228, and in Westminster by £42,951 (7.1 per cent).

The figures are revealed by online estate agent rightmove.co.uk, and show price falls across London. No borough has escaped the slump, although asking prices in the outer suburbs have held up best.

Rightmove's Miles Shipside said: "September, a month that traditionallysees a post-summer pick-up in buyer activity and often in prices, has this year seen the continuation of the quiet summer period.

"Asking prices are now back to where they were in late March of this year. This will bring cheer to London's hardpressed first time buyers," he said.

"But sellers will need to recognise that prices have gone beyond the realms of the affordable and be more realistic. It is only really people who bought very recently who might not be able to sell without making a loss."

The tide began to turn in June, following five interest rate rises since November and repeated warnings from the Bank of England.

At the start of the year, housing economist John Wriglesworth predicted a five per cent rise in London for 2004. A good start to the year resulted in that figure being revised to 10 per cent in March.

However, Mr Wriglesworth reduced his estimate to seven per cent in June and back down to five per cent in July. Today he said he still thought the overall change this year would be five per cent up, but that there would be no overall increase next year.

The market's turning point was the speech by the Governor of the Bank of England, Mervyn King, on 15 June.

Mr King said: "Anyone entering or moving within the housing market should consider carefully the possible future paths of both house prices and interest rates."

His apparently cautious warning sent shock waves through the country. The industry is, however, split between estate agents - who are optimistic about the future - and analysts, who are far more pessimistic.

The Royal Institution of Chartered Surveyors has concluded that overall economic factors, low inflation and low unemployment mean that a crash "is not on the horizon".

The National Association of Estate agents added: "Our London members are reporting that the price falls are mainly at the overheated top end, while the lower end of the market is holding up well."

However, analysts PricewaterhouseCoopers have warned that house prices could fall by between 10 and 15 per cent during the next four to five years, and investment bank Durlacher stands by its prediction that house prices could fall by between 30 to 45 per cent.

Russell Jervis, managing director of estate agency Haart, said: "The market started to cool when interest rose in May and buyers became more cautious. This accelerated when rates rose again in July.

"In general, we have been encouraging sellers to reduce their asking price by five to seven per cent due to there being fewer buyers," Mr Jervis continued.

"In Fulham and Wandsworth, prices had reached a point where enough was enough and the adjustment had to be higher than the average. We have been advising asking-price reductions of seven to 10 per cent. Sellers who did this got offers closer to their asking prices."