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Last Updated: Wednesday, 28 November 2007, 16:11 GMT
London property market 'slowing'
Aerial view of London
London house prices are seen as the engine of the property market
London house prices dropped at their fastest rate in more than two years last month, according to the latest figures from the Land Registry.

Prices were down by 0.6% in October, the first monthly decline in the capital since April 2006 and the sharpest drop since August 2005.

Rises in most other regions meant prices climbed by 0.1% across England and Wales as a whole.

But analysts fear weakening prices in London could threaten the wider market.

Slowdown

Prices in London could be markedly hit by City job losses and reduced bonuses
Howard Archer, Global Insight
The Land Registry said it is the first time in ten months that the London market has been outperformed by England and Wales as a whole.

Despite the fall, the capital continues to have the strongest rate of annual price inflation of any region at 14.7%, but that is down sharply from an annual rate of 16.5% recorded in September.

The average property price in London is now 351,039, down from 354,272 in September.

Across England and Wales annual price inflation now stands at 8.1%, the lowest figure since last December. It puts the cost of an average house at 184,346.

A number of recent surveys - including those from the Royal Institution of Chartered Surveyors (Rics) and property group Rightmove - have shown London to be the only region showing consistently strong price growth.

Outlook

But the Land Registry data suggests the capital's property boom may be at an end, as higher interest rates and affordability constraints start to bite.

House price developments in the capital often act as a lead indicator for the wider market
Ed Stansfield, Capital Economics
Earlier this week, the property website Hometrack said interest from new buyers in London had fallen by a third since July.

Chief UK economist at Global Insight, Howard Archer, predicted the situation in London could worsen.

"House prices in London could be markedly hit by City job losses and reduced bonuses, particularly if the credit crunch and financial market turmoil proves extended, which seems increasingly likely," he said.

He argued this could contribute to a significant fall in annual price inflation more generally.

But Ed Stansfield, property economist at consultancy Capital Economics, was more cautious.

"The fall in London house prices reported in October did not even reverse the previous month's rise, and could yet turn out to be simply noise rather than a new trend," he said.

"Even so, it will doubtless fuel concerns over the housing market outlook, since house price developments in the capital often act as a lead indicator for the wider market."

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