House prices in London have fallen for the first time in eight years, according to Nationwide.
The capital witnessed a 0.6 per cent drop in prices in the third quarter – the first time since Q3 2009 that London house prices have fallen on an annual basis.
At the national level, house prices recovered slightly from a 0.1 per cent drop in August to edge up by 0.2 per cent in September.
On an annual basis they were up by 2 per cent, taking the average UK house price to £210,116.
The East Midlands saw the strongest quarterly growth of 5.1 per cent in the three months to September, while the South West (4.8 per cent) and the West Midlands (4.6 per cent) also performed well.
Although prices in northern England have recently been growing faster than in the south, the gap between the average house prices in the two regions is £171,000, having doubled in the past decade.
Robert Gardner, Nationwide's chief economist, said: “The annual rate of house price growth remained broadly stable in September at 2 per cent, compared with 2.1 per cent in August.
“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.”
Mr Gardner said the impact of an interest rate rise on UK households was likely to be “modest” because it would affect a smaller proportion of borrowers than previous rate increases.
He pointed out that the proportion of borrowers on variable rate products had fallen to its lowest level on record, at around 40 per cent.
Nicholas Finn, executive director of Garrington Property Finders, said the softening of prices in the London prime market had begun to spread away from the central boroughs.
He added: “As a result, the market is at an inflection point, as the froth evaporates and prices gently correct to more realistic levels.
“While supply still remains a problem, demand is holding up well – even if the power dynamic has shifted decisively in favour of buyers. London homeowners who want to sell up and move out are increasingly having to take what they're offered.
“Meanwhile with rents so far unaffected, the prospect of stronger yields has inspired some investment buyers to strike – and on the front line we’re seeing many would-be landlords secure substantial discounts.
“In London, as elsewhere, the market is still relatively free-flowing, despite the low transaction numbers - and pragmatic sellers who are willing to adjust their price expectations are still able to achieve the sale they want.”
simon.allin@ft.com
