Home prices in London run out of steam as common sense takes hold

Concerns over overpaying prompt homebuyers to step back from the market as common sense takes hold amid tougher rules on mortgages

PUBLISHED : Wednesday, 18 June, 2014, 3:29am
UPDATED : Wednesday, 18 June, 2014, 3:29am

Asking prices for London homes fell from a record this month in a sign that buyer concern about overpaying is prompting them to step back from the market, according to Rightmove.

Values in London slipped 0.5 per cent to an average £589,776 (HK$7.8 million), the first decline this year, the property website operator said on Monday.

Prices in Kensington and Chelsea, Britain's most expensive district, eased 0.3 per cent to £2.38 million. Across the country, they edged 0.1 per cent higher, a below average increase for this time of year.

"Parts of the London market are starting to run out of steam," Rightmove director Miles Shipside said. "It's an example to the rest of the country of what happens when affordability and common sense get stretched too far."

The slowdown came as Bank of England governor Mark Carney was due to lead a discussion among financial stability officials yesterday on whether action was needed to prevent the property market from overheating.

Rightmove said new tougher mortgage rules and a cooling in demand might have taken some momentum from the market.

Only a third of London's 32 boroughs saw asking prices increase this month, Rightmove said. The largest gain was in Westminster, the second-most expensive district, where values climbed 3.5 per cent. Prices in Haringey, north London, slipped 4.8 per cent.

Home prices in Britain have surged in the past year amid near-record-low borrowing costs and a strengthening recovery in the economy. In London, values got an extra boost from cash-rich foreign investors seeking a haven. Rightmove's report showed British house prices had jumped 7.7 per cent in the past year, with London up 14.5 per cent.

The surge has prompted warnings from both the Bank of England and international groups such as the European Commission.

Carney said last week that housing debt was a concern and the government planned to give the central bank additional powers to curb mortgage lending. That may further restrict growth after the introduction of new rules in the Mortgage Market Review.

"Through luck or judgment, it appears that the timing of the [market review], more property for sale in all regions and a tail-off in pent-up buyer demand are alleviating some of the upward price pressure," Shipside said. "This will come as a relief to the governor of the Bank of England and the [Financial Policy Committee."