‘Reality gap’ in property prices drives buyers from the market

The difference has increased more than tenfold since 2003, leaving many buyers frustrated by prices that are often little below or even above their boom-time highs.

In 2003 the gap between average asking prices in London and average sale prices stood at £6,574, or about three per cent. But by this year it had exploded to more than £79,000 or 24 per cent.

Estate agents say the phenomenon helps to explain why the capital's property market has been so sluggish in recent years.

Ed Mead, of west and central London agents Douglas & Gordon, said: "There is so much self worth wrapped up in the value of your home that people feel it is social suicide to admit that it is worth less than they paid for it. They are not forced sellers because of low interest rates so what we are left with is a lot of unrealistically-priced properties overhanging the market.

"If the gap is 10 per cent over what people want to pay you can have a decent market but if the asking price is 20 per cent above the actual value it's absolutely impossible."

TV editor Kate Quilton, 26 said she had been looking for almost a year for a large studio or a two-bedroom flat in Zones 1 or 2 and had been prepared to pay up to £300,000 but found almost nothing that appealed.

She said: "The last property I looked at was a studio in a warehouse in Bethnal Green that Foxtons originally wanted £345,000 for. The price was totally over inflated and it was reduced to £309,000.

"Then I had an offer accepted at £289,000 but there were too many conditions attached and I pulled out. Now I automatically go in £50,000 to £60,000 below the asking price because they are too high."

Douglas & Gordon compared asking prices as measured by property website Rightmove, which captures about 90 per cent of the homes on the market, with completion prices recorded at the Land Registry.

In 2003 the gap averaged just over £6,500 with asking and achieved prices in the £250,000-£260,000 range. It peaked at almost £90,000 last year with average asking prices of about £400,000 but sale prices in the £300,000-£320,000 range, before dropping back slightly this year.

The housing market remained bumping along the bottom in October with just 44,000 mortgages approved — the same number as in September and the lowest since April 2009.

The Bank of England said the value of mortgage lending fell to a nine-month low of £5.3 billion while the Council of Mortgage lenders said gross mortgage lending was down 8.5 per cent on the year at £12.4 billion.