London's Home Prices Fall 0.6% in December: End 2010 Up 3.8% Year-Over-Year

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According to London-based Chesterton Humberts ' latest monthly House Price Poll of Polls property report, December's house price decline of -0.9% for London is the steepest recorded in the capital since February 2009, during some of the worst days of the financial crisis. Back then, banks were not lending to one another, let alone smaller businesses and the home buyers, and the UK was bordering on an economic depression.

However, the typical price of a house in London is still 3.8% higher compared to December 2009 and was 10.2% higher in 2010 as a whole compared to 2009.

• House prices declined for the fourth consecutive month in December, after recording a 0.6% decline from November.

• Over the year to December prices rose by 1.5%. But taking 2010 as whole, prices were 6.4% higher compared to 2009.

• Mortgage lending volumes increased for the first time in seven months in November 2010, igniting hope that the housing market recovery will get back on track in 2011.

Exactly half of the thirty-two London boroughs saw prices fall over the month to December. But more than half of the top ten most expensive local authorities in the country (which are all in London) saw prices fall over the month. It remains to be seen whether or not

December's results represent a process of genuine price harmonisation between London and the rest of the country. We think it is more likely that recent price declines in the capital have interrupted a growing divergence which will be compounded by future cuts in public spending to which London is relatively well-insulated.

Chesterton Humberts' CEO Robert Bartlett commented, "Transaction levels are picking up but continuing shortage of mortgage finance and reluctance of owners to bring stock to market are holding back activity.

"While the Chesterton Humberts/CEBR House Price Poll of Polls showed house prices ending the year in a slight decline, we don't expect a dramatic downturn in values.  If the availability of mortgage finance improves we would expect to see an uptick in transaction levels due to pent up demand."

Douglas McWilliams, Chief Executive of CEBR, also commented, "We are encouraged, but not overjoyed, by recent the stabilization of mortgage lending volumes, albeit at woefully low levels. The Monetary

Policy Committee must ensure that lending volumes continue to rise by having the resolve to maintain the base rate at its historic low as inflation is almost certain to fall back in the medium term. However, the government also needs to play its part by encouraging the banks to increase their lending with the various carrots and sticks at their disposal."

Prices of semi-detached and terraced housing fell by -0.6% in December, in line with the national average. While prices of detached housing and flats decreased by -0.4% and -0.7% respectively.

December's price moves run counter to the trend which had seen detached house prices increasing much faster than those of other property types. The price of detached housing stood 3.1% higher at the end of 2010 compared to December 2009. This compares with figures of 1.4% for both semi-detached houses and flats and 1.1% for terraced houses.

Detached home-buyers are more likely to have accumulated sufficiently high deposits to satisfy tight lending conditions compared to their cheaper property counter-parts. The recent increase in the rate of VAT is likely to accentuate this trend further in 2011 as first-time buyers and others at the bottom of the housing ladder are less likely to be able to absorb the additional cost compared to those more likely to purchase detached homes.

 

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