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Tuesday, 23 July, 2002, 16:09 GMT 17:09 UK
London house prices could fall '20%'
Houses
Migration out of London could increase prices outside the capital
London house prices could fall by 20% over the next year, a City economist has warned.


London house prices will fall, Northern house prices will probably accelerate

Steven Bell, Deutsche Asset Management

Steven Bell, chief global economist at Deutsche Asset Management, said that falling stock markets and business failures in the City would force workers to return home, both to UK regions and abroad.

Mr Bell told BBC 2's Working Lunch programme: "I think we're going to get a major development in that London house prices are about to fall probably by 20% over the next year."

He predicts that as many as 300,000 people - including 100,000 foreign workers - could return home next year. This fall in demand would push down prices in the capital - and reverse the boom of recent years.

Returning home

The movement of workers out from London or counter-migration could push up prices elsewhere.

"I've been predicting that UK house price inflation would pick up but what I'm telling you is that UK, London, house prices will fall, Northern house prices will probably accelerate," Mr Bell said.

"It's complicated but it's all to do with the fact that 300,000 people in London - from everywhere from Newcastle to Edinburgh have migrated to London and from the rest of the world and they are all going home."

About 100,000 of these people who have been attracted to work in the City in sectors such as technology and media will return to their homes abroad.

This could "put prices up in Paris and Bangladesh and in Newcastle."

Falling house prices in London, he said, would be good for the stock market as it would allow the Bank of England to cut rates instead of increase them.

But business failures and poor economic conditions in the capital would spell bad news for the buy-to-let market - the sector relies heavily on affluent workers.

Cooling down

A separate survey published on Tuesday suggested that house prices are cooling down, although not at a dramatic rate.

The report by property website Rightmove.co.uk said house prices in England and Wales increased by 1.6% in the four weeks to July 19.

It said the average asking price was now 154,071.

While the market was holding up well following a "wobble" in early June due to the World Cup and Jubilee Celebrations, growth was now at a "lower and more sustained level".

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