House prices in Britain fell for the first time in two years in October and mortgage approvals dropped to a 26-month low, signs that the country's decade-long housing boom is coming to an end.
The average cost of a home in England and Wales dropped 0.1 per cent to £176,100 (€251,776) from September, research group Hometrack said yesterday. Central London led the declines.
Separately, the Bank of England said banks granted 102,000 loans for house purchases in September, the fewest since July 2005.
A jump in credit costs is threatening to slow London's financial services industry and is adding to the debt burden on British homeowners. In the capital, which has fuelled a tripling of British house prices since 1997, bankers will cut the portion of bonuses invested in property by 60 per cent in the next year, according to real estate broker Savills.
"The average City dealer does not see real estate as that good an investment any more," said Yolande Barnes, research director at Savills, which specialises in selling luxury homes.
Average London prices fell 0.2 per cent to £316,000 (€452,000) in October, Hometrack said.
Prices in southwest London and Hampshire in southern England dropped 0.4 per cent. In Cambridgeshire and Oxfordshire, they fell 0.3 per cent.
The housing market has spluttered since the Bank of England raised its benchmark interest rate to a six-year high of 5.75 per cent in July and an increase in market borrowing costs led to a run on deposits at Northern Rock, the first in more than a century.
Another report released yesterday said house-price growth would slow next year to 1 per cent from 7 per cent in 2007.
The report was from the Council for Mortgage Lenders, which represents British home-loan providers.
"Evidence is now coming pretty thick and fast that housing market activity is being squeezed," said Howard Archer, an economist at Global Insight in London.
House prices fell in nine of the 10 regions surveyed by Hometrack, with only the west midlands showing no change.
The collapse of the US subprime mortgage market will hurt the bonuses that bankers and traders have spent on property in fashionable areas such as Notting Hill, Kensington and Chelsea.
About 6,500 bankers and fund managers may lose their jobs next year in the biggest cuts since 2000, and payouts may fall by almost a fifth to £7.4 billion, the London-based Centre for Economic and Business Research estimated this month.
Home repossessions will rise by 50 per cent next year to 45,000, from 30,000 in 2007, as borrowers struggle to make loan repayments, the Council of Mortgage Lenders said.
"The housing and mortgage markets are facing their most challenging period since Labour came to power a decade ago," said Michael Coogan, the group's director general, in a statement. - (Bloomberg)
