London house prices crash

LONDON'S property market crashed by an average of 15 per cent in the last 12 months - the fall accelerated through "a year of turmoil" with a drop of 2.5 per cent last month alone.

The worst hit areas were Westminster which plunged 22 per cent, Waltham Forest 19 per cent, Newham down 18 per cent and Haringey 17 per cent. Other boroughs saw falls of 16 per cent.

The value of the average London home is down to £257,963, latest figures from the Nationwide reveal today.

But most of the capital's homeowners are still sitting on huge profits, according to new research.

A borough by borough breakdown reveals how even the current depressed values are far higher than levels at the start of the boom a decade ago.

Every borough in the capital has seen at least a doubling of prices since then with three - Newham, Hackney and Southwark - still averaging values triple the levels of 1997.

Most economists and property experts are agreed that prices have further to fall this year but some now believe that the decline is slowing and the bottom could be reached by the summer.

The Bank of England is expected to cut its base rate again on Thursday, lowering it to 1.5 or even one per cent, levels not seen since the Bank's formation in 1694. Nationwide chief economist Fionnula Earley said cheaper mortgages and further falls in values could soon start to entice back first-time buyers who have been effectively "locked out" of the surging market since 2003.

She estimates that nationally there are now as many as 750,000 first-time buyers who want to buy, a huge pool of pent-up demand that could put a floor under any further falls. She said: "Clearly this estimation is fraught with uncertainty and sensitive to assumptions, but it does appear likely that a substantial pool of pent-up demand has been building up which could make its way back into the market when affordability improves and economic conditions and house price growth expectations stabilise."

The collapse in housebuilding could also contribute to a shortage of housing that could further help prices recover quickly, she added.

Leading London estate agents also said they believed the worst of the housing storm may now be over.

Ivor Dickinson, managing director of Douglas&Gordon, said: "The London market was hit first, therefore prices have already fallen around 25 per cent. We are nearly there in terms of the bottom of the market with a further five per cent drop still to come. We are already seeing an increase in buyer confidence with an increase in activity in the lead up to Christmas and a good start to the year."

However, some more pessimistic experts warned against any hopes of an early recovery.

Ruth Stroppiana, chief international economist at financial analysts Moody's Economy.com, said: "The UK remains firmly in the grip of the worst housing slump since the Nineties. Rising unemployment through 2009 is expected to fan further house price falls and more forced sales. House prices in the UK are expected to continue to decline through most of 2009, with the average house price likely to shed over 25 per cent peak to trough."

Howard Archer, chief UK and European Economist at forecaster IHS Global Insight, said: "We expect house prices are likely to fall by a further 15 per cent in 2009. This would take them down to £130,091 at the end of 2009 on the Nationwide measure.

"Another five per cent drop in house prices is expected in the first half of 2010, taking them down to a low of £123,586, which would be 34 per cent below their October 2007 peak level of £186,044. House prices are then seen flattening out in the latter months of 2010." Seema Shah, property economist at Capital Economics said: "This year, house price falls are set to be at least as large as in 2008...we expect house prices to fall by 20 per cent in 2009."

The latest Land Registry figures show estate agents in London are struggling to sell even one property a month. Only 4,651 homes and flats were sold in the capital in October, the month after Lehman Brothers bank collapsed and the availability of credit imploded.