Graphic: how house prices are fluctuating borough by borough

Since 2006, property prices in Greater London have gone up by an average of 20.1% - far more than the 10.8% rise in England and Wales as a whole. In prime central London, they went up by 34% in the same period, according to Savills. Yet what a difference a year makes. Suggestions that the capital might prove immune to the general housing market slowdown that began elsewhere in Britain last summer are proving false.

From Crouch End to Clapham, Highgate to Hackney and Tooting to Totteridge, house prices are stagnating, with some boroughs even seeing consecutive monthly falls. What, then, is going on in London?

“We’re at the end of a boom,” says Miles Shipside, commercial director of Rightmove, the property website that monitors asking prices. “The overlaying of the credit crunch onto a market that was overheating after two years of rapidly rising prices means the future is more uncertain than it has been in the past decade.

“We have entered a period of readjustment. Generally, where London leads, the rest of the country follows, but this time it is the other way round. The rest of the country led the slowdown and now London is catching up. The darling locations of the City bonus boom will never be ugly ducklings, but some of the shine has come off the top of the market.”

The most recent Rightmove survey, published last week, reported an unexpected rise of 1.2% in national house prices, a response to seasonal demand - yet, in London, they went up by only 0.2%. A more detailed examination reveals that values dipped in 16 of the 32 boroughs, with some of the more expensive ones showing a sharp slowdown in annual gains. Prices in Hammersmith & Fulham, in west London, fell by 1.6%, and in Hounslow, which includes upmarket Chiswick, they dropped by 4%.

The trend is not always clear. Asking prices in Kensington and Chelsea fell by 2.2% in April, but have risen by 0.6% this month. And, within boroughs, property types and price brackets have also performed differently.

The upper end of the market is also coming under pressure. Figures released last week by Primelocation, a property website that covers only the more expensive boroughs, showed the average asking price for prime London property falling for the first time this year, by 0.6% in April. This puts annualised growth at 11.7%, the lowest level since September 2006, as sellers bow to the inevitable and lower their expectations - and asking prices.

Even here, though, the picture is mixed: prices in Mayfair rose by 4.6%, and those in Hampstead Garden Suburb, north London, by 7.6%, but values in Battersea, Clapham and Wandsworth, all south of the river, fell by 1.1%, with houses faring far worse than flats. There were also drops of 1.7% in Maida Vale and Little Venice, both in west London. In Wimbledon, average prices rose by 0.7%, but three-bedroom properties fell by 5.2%.

The so-called uber-prime market - properties priced at more than £5m - so far remains largely immune to the downturn, with wealthy foreign buyers continuing to pay record prices for the capital’s trophy houses.

“May will be crucial in determining whether this April fall is the start of a sustained downward trend that reflects the mainstream market or merely a monthly blip,” says Mark Milner, CEO of Primelocation.

So, what does it mean for buyers and sellers in the capital? The last slump in the capital was in 2003, when prices stagnated and showed no growth over 12 months. Those hoping for a speedy recovery and a bounce back to the heady price rises of the past couple of years are realising that this is by no means guaranteed.

So far this year, there has been a standoff between buyers and sellers in the capital, with buyers holding out for further price falls and sellers refusing to budge on the asking price. This has created the impression that London has been faring better than the Midlands and the northwest in the wake of the credit crunch, but as stocks of unsold properties pile up, prices are likely to come down.

In addition, this long-awaited natural readjustment looks set to coincide with growing turbulence and uncertainty in the Square Mile and Canary Wharf. A steady stream of redundancies is being announced: Morgan Stanley is cutting 250 jobs, UBS 900 and Merrill Lynch 350. Does this mean the London market will fall harder and faster than the country as a whole?

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, whose latest index shows confidence among its members has further deteriorated, fears it will. “Those employed in the financial services in London are at the front line of pain in the housing market,” he says. “The performance of the London economy has ramifications for sentiment in terms of spending power, and will have knock-on effects reflecting the uncertainties of the credit crunch. So far, however, it is being brought back to heel. Any projections and predictions on the housing market need to come with a health warning.”

Anecdotal reports from Savills agents in the capital suggest asking prices need to be discounted by just under 7% from 2007 levels to achieve a sale in 12 weeks, more in the case of secondary or blighted property.

“The mainstream market in London is now being affected by the credit-crunch-led downturn, much as the rest of the UK,” says Lucian Cook, director of residential research at the agency. “The strong house-price growth in prime central London of 2006 and 2007 (24% and 16% respectively) was fuelled by strong earnings and record bonuses in the City’s financial sector. Today’s wobbles and woes mean the housing market in London has been hit by the same uncertainty as the financial markets.”

Last year, those employed in finance and business services accounted for 52% of all property purchases priced between £1m and £4m, and for 43% of those from £500,000 to £1m. “They are a key part of demand in the prime London markets,” Cook says. “If they go, so do prices. Beyond 2008, the extent to which the London markets pick up depends on the extent to which the credit markets have eased and the gloom hanging over the City has lifted.”

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