Contrary to seasonal expectations, the Capital’s housing market is struggling to get buyers interest, reveals the latest asking price index report from Home.co.uk.

Despite an overall rise of 0.4% in asking prices for England and Wales, indicating a seasonal boost in seller confidence, Greater London prices fell by 0.9% in the second quarter of 2006. London’s home-owners may, however, derive comfort that they are not in the North East which saw a dramatic 4.6% fall over the same period.

The report examines this worrying trend in England’s leading market, in detail. By comparing mix adjusted data for Central and Greater London, the innovative, new index illustrates that London’s so called ‘mini-boom’ has been highly centralised and appears to have already lost momentum. In general, asking prices in Greater London continue a two-year, downward trend.

The fall in asking prices for houses in the North East suggests a significant turning point. Until recently, this regional market had been one of the strongest performers and had not shown a substantial price correction following the 2003/4 property boom. Asking prices only recently reached a maximum in November, 2005, approximately 17 months after peaking in London. Price erosion in the North East increases the likelihood of similar falls in Yorkshire, Wales and the North West.

Should such corrections occur in these remaining, strong performing regions, and the London and South East market continue to be subdued, the state of the UK housing market will enter a critical phase. Moreover, such developments are likely to be exacerbated by any rise in interest rates, which several commentators suggest are inevitable.

The severe slowdown in the US housing market, brought about by inflation fighting interest rate hikes by the Federal Reserve, presents some difficult decisions for the central banks around the world. The European Central Bank has already followed suit by raising its benchmark interest rate on the 8^th June by a quarter point, to 2.75%.

The Home.co.uk Asking Price Index uses current price data, which incorporates the usual discounting activity that takes place as sellers try to attract enquiries. Conversely, the national house price index produced by Rightmove records initial asking prices and therefore tends to be indicative of sellers’ aspirations.

Comparing the two indices, over the last year, suggests a growing mismatch between sellers’ initial expectations and the price required to attract buyers, argues Home.co.uk.