London house prices could be facing some heavy weather

We wrote here late last year that it was time for the prices of London houses and non-London houses to start to converge.

Look at a chart of the way they move, and you will see that, while London prices are always higher, the gap between them reverts to a mean. In the last few years, London prices have moved to an extreme position relative to historical averages. So either London prices had to fall faster than non-London prices or non-London prices had to rise faster than London prices.

Either way, we said, if you were planning to make the trade from a tiny house in South Kensington to a manor in Somerset, get on with it. If you did, you'll be pleased (for now at least) in the last few months, London prices have finally started rising less than non-London prices.

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The world of prime London estate agency is full of stories of houses that would have sold for £15m a year back languishing at under £10m. That's partly thanks to the rising pound up 20% against the euro since the summer, something that makes a UK bolthole rather more expensive for the average Greek tax evader than it once was and partly to political uncertainty.

The hope is that, once the election is out of the way, things will change normal rip-roaring price performance will be resumed. We aren't so sure.

Think about all the headwinds London estate agents are currently dealing with. House prices and sales will be hit if banks such as HSBC or Standard Chartered really do leave London to avoid the rising bank levy (this time I don't think they are bluffing). They'll be hit by the mansion tax if Labour win the election. They'll be hit by the possible reintroduction of the 50% rate of income tax partly because it will mean lower net incomes at the top end and partly because of the message it will send about Britain's views on wealth creation. And they'll be hit by the abolition of non-dom status (again a Labour promise).

But that's not all they might take a greater hit than the rest of the UK market from any attacks on the tax treatment of buy-to-lets (I suspect a higher percentage of the London property market is rented than is the case elsewhere in the UK) and from any other taxes the various parties might come up with (they all know they need huge amounts of money and having a go at those perceived to be rich is always easier than spending less whether it works or not).

Finally, it is worth noting that nothing in our domestic politics can stop the world's big buyers getting poorer: the Saudis are seeing collapsing oil revenues; the sanctioned Russian economy is a mess; and the crackdown on corruption in China means that one of the traditional routes to wealth there isn't working as well as it did.

If there aren't as many super rich foreign buyers as there were, and if the ones that do exist have either already bought or are put off by the way the UK is backing away from its traditional role as tax haven to troubled foreigners, what happens to prime central London house prices?

If I still owned a house in London (whoops) I'd sell up and move to Bath.