London house price lead hits high

THE GAP between house prices in London and the rest of Britain has ballooned to its widest on record but is set to narrow over the next 12 months, Britain's biggest mortgage lender said.

Prices in the capital were 87% higher than the national average during 2001, according to figures from home loans giant Halifax, the biggest differential since it started compiling its house price index in 1983.

The average price of a property in London is now £179,558 compared with the UK average of £96,149. This gap of £83,409 is more than double that seen at the height of the late 1980s boom.

But there are already signs that the gulf is narrowing. During the fourth quarter of 2001, house prices in London rose by 2.2% compared with 2.6% across Britain as a whole. Halifax, part of financial services company HBOS, said London is likely to bear the brunt of the housing market slowdown this year, with prices rising by just 2% over the next 12 months, compared with a national average of 5%.

'The ratio of prices to earnings is above its historical average in London, suggesting that significant numbers of first-time buyers are finding it difficult to enter the market,' said the bank's regional general manager David Thompson. 'Greater difficulty in being able to purchase a property is likely to lower demand and constrain house price growth during 2002.' In addition, Thompson said, lower City bonuses and the stock market slump would keep a lid on price rises.

Among the worst hit areas are the regions around Heathrow, such as Hounslow and Staines, and the Gatwick corridor where sales activity has dried up because of concerns about the plight of airline industry where thousands of jobs have been axed.

For £1m-plus properties the picture is also one of slowing price rises. However, sales activity continues to be steady, boosted by City professionals investing bonuses in property rather than the stock market.

Outlying boroughs such as Bexley are still enjoying strong price gains, benefiting from their ability to offer better value than some of their more fashionable neighbours and consequently seeing strong demand for homes. Riverside properties and fashionable Chelsea, Fulham and Putney also continue to weather any concerns of a slowing market. 'The sheer popularity of these areas and the quality of properties is supporting the market,' Thompson said.