London house prices have fallen for the first time in eight years

Rebecca Smith
The capital was the weakest performing region
The capital was the weakest performing region (Source: Getty)

Year-on-year house prices in the capital have dropped for the first time in eight years, according to Nationwide's latest house price index.

Prices in the capital dropped to an average price of £471,761 this month, down 0.6 per cent compared with September last year. That makes London the weakest performing region for the first time since 2005.

Across the UK as a whole, annual house prices rose two per cent to an average of £210,116. The rate of growth was broadly stable compared with the 2.1 per cent recorded in August.

Read more: Experts have predicted London house prices won't rise until after Brexit

How London became the weakest performing region:

Average price (Q3 2017) Annual % change this quarter Annual % change last quarter
East Midlands £177,825 5.1 per cent 4.1 per cent
South West £240,832 4.8 per cent 4.4 per cent
West Midlands £183,018 4.6 per cent 3.6 per cent
Outer SE £277,519 3.9 per cent 3.5 per cent
East Anglia £222,080 3.9 per cent 5 per cent
North West £156,193 2.8 per cent 4.1 per cent
Wales £149,970 2.6 per cent 1.4 per cent
North £127,213 2.5 per cent 1.1 per cent
N Ireland £133,659 2.4 per cent 3.8 per cent
Outer Met £365,584 2.1 per cent 2.1 per cent
Scotland £146,022 1.9 per cent 1.7 per cent
Yorks & H £151,482 0.4 per cent 2.3 per cent
London £471,761 -0.6 per cent 1.2 per cent

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 per cent. Consequently, London was the weakest performing region for the first time since 2005.

Gardner added: "Housing market activity, as measured by the number of housing transactions and mortgage approvals, has strengthened a little in recent months, though remains relatively subdued by historic standards.

“Low mortgage rates and healthy rates of employment growth are providing some support for demand, but this is being partly offset by pressure on household incomes, which appear to be weighing on confidence. The lack of homes on the market is providing ongoing support to prices."

London's housing bubble risk

Earlier this week UBS Wealth Management warned that London's property market was still firmly in "bubble-risk" territory, saying it was one of the most vulnerable housing markets in Europe.

Looking ahead at the impact of a potential interest rate rise, the Bank of England's monetary policy committee signalled in its meeting this month that if the economy develops broadly in line with expectations, a hike is likely in the coming months.

Gardner said most economists think a small rise of 0.25 per cent is likely at the next MPC meeting in November, taking the bank rate back to 0.5 per cent.

He said the impact on UK households of a small rise in interest rates is "likely to be modest", as the proportion of borrowers directly impacted will be smaller than in the past.

Read more: Why London's property market is still firmly at risk of a bubble

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