Gap narrows between prices in the capital and elsewhere

Further base rate cuts and other measures needed to curb the drop in prices

Property prices in London fell by 13.3 per cent last year, compared with an average across the UK of 12.8 per cent, according to the Centre for Economics and Business Research (CEBR) house price poll-of-polls, commissioned by Chesterton, the estate agent.

“The house price fall in London has narrowed the gap between prices in the capital and prices elsewhere in the UK,” Douglas McWilliams, the chief executive of the CEBR, said.

The average property in England and Wales is worth £171,348, down 1.6 per cent from November and at a level last seen in February 2006.

The monthly decline was the sixteenth successive drop in house prices. With the exception of Scotland, which experienced marginal growth, prices fell across the UK last month.
All types of property have suffered, with the most expensive 20 per cent of homes falling in value by 12.8 per cent year on year, in line with the national average, and the bottom 20 per cent dropping the most, down 13.8 per cent from December 2007.

Terraced housing has been hit the hardest. The average value of a terraced property has tumbled
13.2 per cent in the past year. Detached houses have proved the most resilient, with a year-on-year drop of 10.8 per cent.

Mr McWilliams commented that interest rates, cut to an historic low of 1.5 per cent following the Bank of England’s January announcement, were now "so low that the economy may not benefit from any further base rate cuts and other measures might be needed to curb the drop in house prices .
"We also urge the government to act upon the recommendations set out in the Crosby review and set up a mortgage loan guarantee scheme."

Sir James Crosby, the former Halifax Bank of Scotland chief executive, recommended that the government provide temporary guarantees for new residential mortgage-backed securities.

Banks traditionally sell on bundles of their mortgages to investors, in a process known as securitisation, to raise money to fund new lending. But the securitisation market has dried up in the wake of the problems in the US sub-prime mortgage sector, leaving banks increasingly reliant on using money from depositors to fund their mortgage lending.