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 pounds in London’s most expensive neighborhoods fell 3.7 percent from a month earlier, Knight Frank LLP said in an e-mailed statement Jan. 31. In the past 12 months, prices have slumped 21 percent, the biggest annualized 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 in the statement. “This factor is continuing to cause problems for the housing market and the wider economy.”
The cost of buying a luxury home in the U.K. capital has fallen for 10 straight months, declining 21 percent since the market’s peak in March. The biggest drop since the broker started the survey in 1976 was 3.9 percent, 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 percent from their peak, compared with its previous estimate of 30 percent.