London Prices to remain flat

Some property experts are forecasting a one in ten chance of a crash in London house prices, equivalent to events in the 1990s.

Recent turmoil in the financial markets and the higher cost of borrowing have already brought about a decline in London asking prices.

At the same time, lenders are tightening their criteria for new mortgages and this could put some of the smaller buy-to-let lenders out of the market whilst also discouraging first-time buyers.

Both the Paragon Group and Bradford & Bingley, two of the UK’s largest buy-to-let lenders, have reported a slowdown in business.

The Royal Institution of Chartered Surveyors (RICS) is forecasting that prices in the capital will stay flat during 2008, having previously forecast growth of at least 3% cent during the year.

Right-move, the property website, recorded a 2.5% decrease in London property values during August, the biggest fall since 2004.

Simon Rubinsohn, chief economist at the RICS believes that “The likelihood of a material down-turn in the property market is still quite slim”.

However, he points out that if the period of uncertainty in the credit markets persists to the end of 2007, higher interest rates could stay for longer.

Nigel Terrington, chief executive of Paragon is predicting a “dull year” for the UK housing market overall in 2008, while Andy Wiggins, head of Bradford & Bingley’s buy-to-let division, sees Northern Rock’s difficulties as a precursor to “fewer lenders stretching their lending criteria”.

Kensington Group, which specialises in the UK sub-prime market, is now only lending 75% of the property value, compared with 90% previously.

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