London sees first fall in house prices for eight years

London house prices have recorded a year-on-year fall for the first time in eight years, according to an index.

London was the only UK region to see an annual price decline in the third quarter of 2017, with a 0.6% fall, Nationwide Building Society said.

It was the first time since the third quarter of 2009 that London house prices have fallen annually.

For the first time since 2002, the East Midlands was the top-performing region for house price growth, with values up by 5.1% year-on-year.

Robert Gardner, Nationwide's chief economist, said: "House price growth rates across the UK have converged in recent quarters.

"Annual growth rates in the south of England have moderated towards those prevailing in the rest of the country.

"London has seen a particularly marked slowdown, with prices falling in annual terms for the first time in eight years, albeit by a modest 0.6%.

"Consequently, London was the weakest-performing region for the first time since 2005."

Northern Ireland saw a softening in annual growth to 2.4%, from 3.8% the previous quarter, while Wales saw a pick-up, from 1.4% the previous quarter to 2.6%.

Annual price growth in Scotland was similar to last quarter at 1.9%, slightly up from 1.7% previously.

Across the UK as a whole in September, annual house price growth remained steady at 2%.

House prices edged up by 0.2% month-on-month, taking the average property value to £210,116 in September, Nationwide said.

Within England, house price growth in northern regions (including the Midlands, Yorkshire and Humberside, North West and North East) exceeded that in southern England (including the South West, South East London and East Anglia).

Northern England saw a 3.2% year-on-year increase, while in the South prices were up 1.9%.

Nationwide said that while price growth in the South has slowed, the gap in cash terms between southern and northern England remains "exceptionally high" at £171,000 - a figure which has doubled over the past decade.

Talking about the possibility of the Bank of England base rate increasing from its record low of 0.25%, Mr Gardner continued: "Providing the economy does not weaken further, the impact of a small rise in interest rates on UK households is likely to be modest.

"This is partly because the proportion of borrowers directly impacted will be smaller than in the past. In recent years the vast majority of new mortgages have been extended on fixed interest rates.

"The share of outstanding mortgages on variable interest rates has fallen to its lowest level on record, at circa 40%, down from a peak of 70% in 2001.

"Moreover, a 0.25% increase in rates is likely to have a modest impact on most borrowers who are on variable rates. For example, on the average mortgage, an increase of 0.25% would increase monthly payments by £15 to £665 (equivalent to £180 per year)."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the report "brings fresh evidence that the housing market still is in a weak patch".

Howard Archer, chief economic adviser at EY ITEM Club, said: "We retain the view that house prices are likely to rise by 2.5% over 2017. A modest rise around 2% also looks likely in 2018."

Jeremy Leaf, a north London estate agent and a former residential chairman of the Royal Institution of Chartered Surveyors (Rics), said buyers and sellers are still nervous about prospects for the market.

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