House prices: slump starts

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The capital as a whole saw a 0.4 per cent drop in February, leaving the average at £353,760. It is the biggest monthly downturn since March 2005 when values slumped by 1.2 per cent.

Almost a third of boroughs - from Barnet to Merton - saw property prices dip, according to Land Registry figures.

Significantly, the biggest losers were in Kensington & Chelsea, the area that has benefited most from the City bonusfuelled property explosion of the past decade. Values there fell by 0.7 per cent in the month.

The impact of a less generous bonus round has also been seen in a big drop in the number of London properties changing hands for more than £1 million. It fell by 34 per cent, from 327 to 215.

The Land Registry figures are regarded as the most reliable of any house price measures because they record all prices at completion rather than asking prices or those recorded by a particular lender. The February slump will increase fears that London is heading for a painful house price " correction" after trebling in a decade.

Yesterday forecasters Capital Economics said it was "entirely plausible" that prices could tumble 25 per cent in two years. The Land Registry statistics show that the losses are concentrated in the wealthier boroughs of west and south-west London.

The other boroughs where prices fell in February - despite an interest rate cut at the start of the month - were Barnet (0.3 per cent), Ealing (0.3 per cent), Hillingdon (0.3 per cent), Islington (0.4 per cent), Kingston upon Thames (0.4 per cent), Merton (0.5 per cent), Richmond upon Thames (0.3 per cent) and Wandsworth (0.2 per cent).

Although annual house price inflation in London is still running at

10.6 per cent, experts believe the turning point has now been passed.

Home owners were given a glimmer of hope today when a leading City economist predicted that interest rates will be slashed to just 3.5 per cent next year.

For a London family with a typical £200,000 mortgage it would mean a saving of around £110 a month.