Biggest drop in London prices since 2002

Property prices in London – once thought to be immune from the ravages of the credit crunch – are witnessing a sharp correction according to the latest data.

Research from estate agent Knight Frank finds price in the capital saw falls of 1.7 per cent during June, slightly ahead of the 1.5 per cent fall recorded in May.

As a result, prices have now fallen for two consecutive months and are now 3.1 per cent lower than three months ago, equalling the largest recorded quarterly fall in the index since 2002.

"The fall in prices that began in May has intensified during June, demonstrating that there can be no doubt that even property in prime Central London has been hit by the double whammy of the credit crunch and wider concerns over the global economy," said Liam Bailey, head of residential research at Knight Frank.

The tightening of lending criteria and reduction in availability of mortgage finance is thought to be propagating falls across the country.

Research from the Bank of England shows transaction levels for house purchases fell 63.8 per cent in May – with just 42,000 approved.

The downturn is slowly eroding last year’s price gains, with levels now just 7.5 per cent higher than a year ago - the lowest annualised increase since November 2005.

"The headline price figures hide the marked slowdown in sales volumes," continued Mr Bailey.

"In some parts of the capital, the number of homes being sold has fallen by as much as 70 per cent over the last twelve months – a result of the tightening market for mortgage finance and a crisis in confidence in the housing market."

The Knight Frank research also finds achieved prices are now four per cent lower than asking prices, compared to six per cent in May, while the number of days a property stays on the market before sale has continued to fall back - to 43 days from a high of 81 in February.

Yet, the wealthy appear to remain above the malady sweeping the market.

Super-prime properties – those valued at £10 million or more - remain relatively immune from the slowdown, with prices only falling by 0.9 per cent last month, still standing 22.7 per cent higher than a year ago.

"However, the market for super prime properties worth over £10 million is relatively untouched by the gloom elsewhere, driven by international buyers enriched by the commodities boom," concluded Mr Bailey.

Chris O'Toole