Lending curb seen further depressing London market

London property prices will fall in the next two years because of mortgage scarcity and public-sector budget cuts announced by the British government in its spending review last week, analysts say.

Consultancy Capital Economics forecasts that residential property prices will drop 13 per cent next year and 12 per cent in 2012.

'The market remains overvalued and there is a need for the gap between prices and incomes to come back down,' said Ed Stansfield, the chief property economist at Capital Economics.

'The spending review will have an effect on sentiment, and, finally, there is the lack of mortgage credit.

'If anything, banks are tightening rather than loosening their lending criteria.'

The Council of Mortgage Lenders estimates gross mortgage lending will be GBP150 million (HK$1.83 billion) this year, less than half of the GBP362 million lent in 2007 when property prices peaked. Mortgage availability is declining, it says.