By Jim Pickard and Chris Giles in London
Published: August 24 2007 21:53 FINANCIAL TIMES
Fears are growing that the fallout from the US subprime mortgage meltdown will hit house prices in central London, one of the world’s hottest high-end property markets.
Prices for “prime” homes in the most expensive streets of the capital have risen about 50 per cent in the past two years as a financial services boom has enriched bankers and other professionals in the City of London.
But the global market turmoil unleashed by the US subprime collapse is threatening activity levels at banks in the City, and London property agents are warning that high-end residential prices could suffer as result.
“If there is a downturn in City profits and employment levels, you couldn’t be surprised if central London prices fall,” said Liam Bailey, head of research at Knight Frank, the property consultancy.
The importance of the City to the economy was underlined as official figures showed business services contributed over half the economic growth in the second quarter of the year.
Mr Bailey said there had long been a correlation between the health of the City and London residential prices. The prime London market suffered badly in 2002 and 2003 after prices of technology and telecommunications shares crashed.
John Young of Humberts, a London estate agent, said the recent “uneasiness” in the City had prompted several deals to fall through. Tracy Kellett, founder of BDI Home Finders in London, a buying agent, said some sellers were dropping prices.
David Forbes, a director of agents Savills said it was too early to call the market.
Charles Ellingworth of Property Vision, an adviser to home buyers, said City “tremors” had a “huge impact” on buyers’ confidence. “We are not seeing panic yet but the closest comparison we have is that this feels remarkably like August 1998.”
But in a word of well-deserved caution, given the strength of the rebound after the 1998 financial crisis, he added: “For three months, we didn’t do a deal then suddenly in November it all came back to life and we had the two busiest months ever.”
Additional reporting by Steve Lodge