City bonus fears hit prime market

Property purchases are coming under pressure in the wealthier London districts after gloomy forecasts for end-of-year City bonuses.

Estate agents have reported some deals falling through, while mortgage brokers have seen a number of active buyers put their property searches on hold, for fear they will not receive the bumper payouts they had hoped for.

House prices in areas popular with City professionals, such as Mayfair, Kensington and Chelsea, rose at their slowest pace for a year last month as the impact of the credit crunch took hold.

The Prime Central London index from Knight Frank rose by 2.1 per cent in August, down from 3.9 per cent in July. Liam Bailey, head of research at Knight Frank, said that while this took annual growth from 36.4 per cent to 37.9 per cent it was the slowest monthly growth rate since last August.

News that lenders are now being more cautious when basing loans on future bonuses could send further tremors through the prime market.

Most at risk of price pressure are houses in areas such as Wandsworth and Fulham, according to Richard Donnell, director of research at Hometrack, the property research group. These are popular with City workers who depend on bonuses and may spend between £1m and £2m.

“If mergers and acquisitions dry up and credit markets remain suppressed, there will be an impact,” said Mr Donnell. “Buyers may have good credit histories but it may be harder to find the equity than before.”

Figures from Hometrack show that prices in Fulham rose 1.6 per cent in August – after leaping by 5.9 per cent and 5.3 per cent in June and July respectively. A similar story can be seen in Wandsworth, where price inflation dropped to 2 per cent last month from 3.5 per cent and 5.3 per cent in the previous two months.

This still represents strong growth on an annualised basis, reflecting how hot London’s property market is compared with the rest of the country. But the trouble in financial markets may bite in these boroughs.

Ian Gray, sales director at Clegg Gifford Private Clients, a high-end mortgage broker, said some clients had shelved plans to buy property until they had a clearer idea of what bonuses they would get.

“We have had seen larger City clients who were actively looking for properties three or six months ago putting off their purchases. They are adopting a ‘wait and see’ approach,” he said.

Those who took out large loans last year and are relying on future bonuses to pay off chunks of their debt, could also fall into difficulty.

Mr Bailey said: “Houses between £1m and £2.5m are most at risk because they are the people who have borrowed a lot, relying on bonuses and they could be hurt,”

Further up the housing ladder, prices for the most expensive homes are still racing ahead. Mr Donnell said the £2m-plus market was less dependent on the City given how many buyers were from overseas. “As long as the global economy grows that market is less affected,” he said.