London flats set for 10% dip as supply exceeds demand

Winkworth, which has 58 branches around London, said more flats were coming onto the market while young buyers were finding it hard to get access to mortgage funding without deposits of at least 20%. In contrast, buyers of family homes in the £500,000 to £1.5million bracket were often sitting on big piles of equity having gained during the property boom and could gain access to the best mortgage deals.

The findings came as Halifax's latest house price index showed UK average prices edging 0.2% ahead during August, taking the cost of the average UK property to £167,953.

Winkworth chief executive Dominic Agace said: "The family house market remains buoyant with ongoing upward price pressure this sector recovered quickly and continues to fare well.

"We anticipate house prices will hold the increases seen in the first half of the year as shortages remain and as lenders continue to target new business in this section of the property market."

However, the outlook is less buoyant for flats, with prices likely to finish the year 10% down on this year's peaks "meaning that many of the gains made in 2010 may be eroded in all but prime markets". Agace added that areas of London which were seeing strong interest from buyers included Shepherd's Bush and Kensal Rise - neighbourhoods on the fringes of prime London but still with good transport links.

Winkworth, which franchises its branches, reported a 21% increase in sales to £1.68 million in the first half of the year. Pre-tax profits were up 79% at £563,345. There is a 1p interim dividend.

Halifax's latest house price index is more upbeat than Nationwide, which reported a 0.9% fall in August prices as well as declines in July.

Housing economist Martin Ellis said the modest 0.2% rise in the Halifax index - although weaker than July's 0.7% increase - had reversed most of the falls seen in the previous quarter amid election nerves. He expects the market to remain "static" across the year as a whole.

He said: "The market is broadly stable with house-price inflation having cooled since last year when supply shortages helped to push up prices."

Catherine Penman, head of research at property consultancy, Carter Jonas, said the market was "auto-correcting" after a mini bull-run in 2009.

She added: "There is a lot of hyperbole and scaremongering around house prices at present - specifically about the possibility of a double dip - but the reality is far more mundane. We are likely to see a sideways-moving market over the course of the next six months."