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London luxury home prices had the second-biggest decline on record in January as would-be buyers struggled to secure mortgages from banks hurt by the global financial crisis.
The average value of homes costing more than 1 million ($2.8 million) in London's most expensive neighborhoods fell 3.7 per cent from a month earlier, Knight Frank said. In the past 12 months, prices have slumped 21 per cent, the biggest annualised drop recorded by Knight Frank.
The sudden restriction of mortgage finance "was the main cause of the market's decline last year", Liam Bailey, head of residential research at London-based Knight Frank, said. "This factor is continuing to cause problems for the housing market and the wider economy."
The cost of buying a luxury home in the UK capital has fallen for 10 straight months, declining 21 per cent since the market's peak in March. The biggest drop since the broker started the survey in 1976 was 3.9 per cent, recorded in October.
Financial-services companies in London may cut as many as 60,000 jobs by the end of 2010, according to research firm Oxford Economics. As a result, the market won't rebound soon, Knight Frank said.
"Price falls should begin to level out towards the end of 2009, although 2010 is likely to see prices move sideways at best," said Bailey. Knight Frank now expects prices to fall as much as 35 per cent from their peak, compared with its previous estimate of 30 per cent.
The drop in prices has attracted more potential buyers. The fall in the pound against the dollar and the euro is prompting international buyers to look at London properties. Viewing levels last month were 65 per cent higher than a year earlier, while the number of international buyers registering with a broker in January was 35 per cent more than the year before.
The neighbourhoods attracting the biggest increase in interest last month were Mayfair, Knightsbridge, Belgravia and Chelsea, said Knight Frank.
"If the weakness of sterling continues, it will help to bolster demand from the foreign super-rich, partially compensating for the reduced earning ability of many City-based buyers," said Bailey.
The pound has fallen 28 per cent against the dollar and 14 per cent against the euro in the past year.
House prices across the UK fell 1.3 per cent in January from the previous month and about 17 per cent on an annual basis, Nationwide Building Society, the UK's largest customer-owned mortgage lender, said on January 29.
- BLOOMBERG
