City job and bonus cuts could hurt house prices

Job cuts and falling bonuses in the City could cause house prices to drop in London, according to a report.

Bonuses in the Square Mile are expected to fall by around 40 per cent year-on-year while approximately 27,000 jobs could go in 2011, the Centre for Economic and Business Research (CEBR) found recently. This could impact on houses prices in the capital and other areas in the South because it is believed a third of bonus money is spent on investing in property.

London is the only area of the country where house prices were higher last month than in October 2010, estate agent Chesterton Humberts and the CEBR’s House Price Poll of Polls found. Public sector cuts that have hit house prices in the rest of the country have not had such a large impact in London.

Chesterton Humberts CEO Robert Bartlett said: “London has been relatively unscathed by the recession and its aftermath. International buyers seeking a safe haven of value still equate prime London property with other secure portfolio investments such as gold. But the continuing economic turmoil in Europe and the perceived threat to the financial services sector will dampen traditional bonus purchases.

“London’s relative stability has masked the increasing divergence of prices between London and the rest of the country. Over the year to date prices have risen by 3.6 per cent in the most expensive fifth of property areas, all in London, and fallen by minus 4.5 per cent in the least expensive fifth.”

House prices across the UK as a whole fell by 0.2 per cent in October, according to the research. However, the number of mortgage approvals in August reached its highest level since December 2009, before remaining above the 50,000 mark in September. Investor confidence should also be boosted by an increase in the scale of the Bank of England’s Asset Purchase Facility, which has been raised to £275bn.

CEBR chief executive Douglas McWilliams said: “The drop in both bonus payments and the number of City-type jobs is concerning for London as a financial centre and a destination for inward investment. With financial services helping drive the capital’s economy and playing a leading role in its housing market, subdued activity in the City is a concern for the asset values over the coming year.

“The latest official figures show that the UK escaped negative growth in the third quarter of the year, but a weak labour market and continued uncertainty in the Eurozone is likely to impact house prices in the short-term”.

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