London house prices seen falling as BOE acts to cool market

PUBLISHED : Friday, 11 July, 2014, 1:31am
UPDATED : Friday, 11 July, 2014, 1:31am

London house prices rose at their slowest pace in 15 months last month and values are expected to fall as Bank of England (BOE) measures to cool the property market deter buyers, the Royal Institution of Chartered Surveyors (RICS) said yesterday.

A gauge of home prices in the British capital dropped to 31, the lowest since March last year, from 50 in May, RICS said, citing a poll of property surveyors. A measure of price expectations for the next quarter fell to minus 10 from 24. That indicates more respondents see declines than increases and is the weakest reading since May 2012.

London has led the surge in British house prices in the past year, prompting central bank officials to announce measures last month to limit riskier mortgages and prevent an unsustainable buildup of consumer debt. That and tougher affordability tests were slowing activity, RICS said.

"Rhetoric from key officials at the bank, including Mark Carney, alongside the consequences of the introduction of the Mortgage Market Review are already slowing momentum, particularly in London," RICS chief economist Simon Rubinsohn said.

"Buyer enquiries in the capital are now slipping back, which suggests that the very sharp upward move in prices will flatten over the coming months."

Improving economic growth and record-low borrowing costs drove demand for homes, with cash-rich foreign buyers intensifying the pressure in London. Home prices in the capital jumped 26 per cent year on year last month, the biggest annual increase in 27 years.

The RICS survey showed that surveyors expect house prices in London to increase in the next 12 months.

An index of British house prices slipped to 53 last month, a four-month low, from a revised 56 in May, RICS said. The number of properties put up for sale increased for the first time in six months and demand eased.

Home-loan approvals fell to their lowest in almost a year in May, according to BOE data.