Estate agents report cooling of market in most exclusive London areas but ripple effect likely to raise prices in south-east. Soaring house prices in London’s prime locations are showing signs of a slowdown, according to new figures.

Prime London property prices show signs of slowdown!

Soaring house prices in London’s prime locations are showing signs of a slowdown, according to new figures.

Estate agent Knight Frank, which monitors prices in the capital’s most exclusive boroughs, reports that prices of properties in prime central London locations ended the year 7.5% higher – outperforming gold, which fell in value by a quarter between January and mid-December.

However, the annual rate of increase was below the 8.7% recorded last year and the 12.1% seen in 2011. Prices in Chelsea rose by 2.7%, with growth of 5.8% in Mayfair and 6.7% in Knightsbridge, meaning that all three areas underperformed the wider prime central London average for the first time in a decade. Areas such as Islington and Marylebone saw prices rise by about 12%.

Knight Frank predicts that this year prices in the most desirable areas will rise by just 4%, which suggests a cooling-off in the market is on the cards, possibly as investors look to buy in other countries.

The slowdown is unlikely to ease concerns that parts of the UK property market are in danger of overheating. The expansion of the help-to-buy scheme, when the government gives guarantees to lenders on properties up to the value of £600,000, is expected to fuel further interest in the property market in the coming months as banks release new mortgages.

Estate agents are predicting that prices in the south-east will outperform the market this year as a “ripple effect” spreads from London to towns within easy commuting distance of the capital.

The slowdown in London prices is in contrast to predicted double-digit growth in places such as Dubai, Beijing, Shanghai and Sydney.

But few estate agents are predicting that prices will go into reverse. Figures due out next week are expected to show that demand will increase next year, while the supply of housing stock remains limited.

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