House prices are on a knife-edge

"House prices still soaring", said a headline in the Daily Express last week, as the latest figures from Nationwide Building Society showed prices rising 0.5% in May, with annual house price inflation still above 10%. On the same day, the Daily Mail also ran a housing headline: "House price boom over?" asked the paper, as the Land Registry announced that in several areas of the UK the northeast, southwest, northwest, Yorkshire and Humber house prices actually fell in April.

So what's really going on? Most of the figures coming out suggest weakness all over the country. Mortgage approvals dropped in April to 107,000 from 112,000 the month before the lowest number since April 2006 according to the Bank of England (new mortgage approvals are often seen as a good indicator of the market's likely direction). The Royal Institute of Chartered Surveyors says that its members have seen enquiries from new buyers drop in April for the fifth month in a row. Perhaps, says Gabriel Rozenberg in The Times, after four interest-rate rises in nine months, potential buyers are "taking fright at the rising costs of home ownership".

Except in London, that is. While the average house-price rise in April (on Land Registry figures) was 0.6%, this was skewed by the 2.3% rise in London, where, if you believe the estate agents, houses are snapped up by sealed bid within hours of coming on to the market and every day brings a new record price.

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Estate agents say this is a sign that the UK now has a two-tier market in which London moves separately to the rest of the country. We are not convinced. Sure, there are foreign buyers and wealthy City workers aplenty, but they can't buy everything and with prices now nearly seven-times average salaries in the capital, no one else can afford to buy anything. Might it be that far from being different to the rest of the country, London is just lagging behind?

Ed Mead, of Douglas & Gordon, says that London is no longer a seller's market but "a finely balanced market" and, in The Sunday Times, Peter Conradi points out that in the sub-£1m part of the market "things are beginning to cool".