House prices forced down

House prices in London have fallen for the first time in a year, signalling the end of rampant property inflation.

House prices across London fell by 0.4 per cent this month, the first such fall for 12 months. In some areas the fall was as steep as 1.9 per cent.

The drop was hailed by experts as "a significant change in the climate of the housing market".

In January price monitors Hometrack predicted five per cent rises in London. In March it revised the figure upwards to 10 per cent. This estimate was reduced to seven per cent last month and has now been cut again to five per cent. This month's fall in prices exactly reverses the June increase of 0.4 per cent.

Prices last fell in London by 0.2 per cent in July last year. This time, however, Hometrack says the fall is part of a wider trend.

The turning point appears to have been the speech given by the Governor of the Bank of England on 15 June.

Mervyn 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 - added to recent rate rises - sent shock waves through the country.

Buyers are clearly taking heed of Mr King's words. Hometrack has recorded a dramatic drop of 7.1 per cent in the number of new buyers registering with estate agents, following a fall of 1.8 per cent last month.

They are also becoming more choosy: the average number of viewings per sale has increased to 12.8 compared with 12.1 last month.

On the other hand, sellers are rushing into the market at a time of year when activity traditionally gives way to the summer holidays. The number of new properties for sale this month increased by 6.1 per cent, following a three per cent rise last month. As a result, owners are accepting offers well below their asking price. The average discount on the asking price has gone up to 5.7 per cent, from 4.9 per cent last month. The only two boroughs to see price rises this month are Hackney and Hounslow.

The biggest fall was in Camden - 1.9 per cent - while Hammersmith and Fulham and Merton also saw drops of more than 1.3 per cent and 1.2 per cent.

John Wriglesworth, Hometrack's housing economist, said: "There are now inescapable signs that the market has peaked."

Last week a survey by the Royal Institution of Chartered Surveyors also found that house prices in London and the South-East have fallen slightly, but concluded that a crash "is not on the horizon".

However, other experts remain far more pessimistic. This month PricewaterhouseCoopers warned that house prices could fall by between 10 and 15 per cent during the next four to five years.