London "not immune" from price slump

The London market is "not immune" to the strife seen across the UK's property market, according to estate agent Knight Frank.

While prices in the capital have been performing in excess of those in other areas, there remains the distinct possibility of a moderation in prices.

"The prime market is not immune to what is going on with the credit crunch and in the mortgage market and everything depends on how quickly the mortgage market returns to normal," Liam Bailey, head of residential research at Knight Frank.

"If it doesn't return to normal then we have a problem this year."

If credit conditions do not loosen then growth could be zero or even "significantly negative" over the course of 2008, predicts Knight Frank.

"But assuming that it does return to normal in the next two or three months, I think we will probably see zero growth this year in the prime markets – it won't be a disaster in the medium to long term," said Mr Bailey.

According to the latest Land Registry figures, prices in London have increased by 10.6 per cent over the previous year. Yet, they fell by 0.4 per cent in February.

The average price now stands at £353,760.

However, prices at the top end of the market are fairing better than more economic properties.

"You could say that the prime market, which is about two million plus in London, is weathering the storm better than any other market, but what's happened in the last two or three months is that the price bracket that is doing well and maintaining growth is getting higher and higher and is now really about ten million plus," said Mr Bailey.

Prices further down the scale are most likely to see some negative impact in the coming months.

"But, if you look at anything below that [£2 million plus market] it's beginning to struggle," explained Mr Bailey.

"Prices haven't really grown for the last three or four months, yields are down, probably 20 per cent year on year and that market is suffering like everywhere else, because most people, even if they are well off, it is still difficult and people are generally nervous about buying because things are a bit more unsettled."