London hit hardest by property market fears

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Property information group Hometrack said the average cost of a home in central London fell 0.5 per cent this month - the highest rate for any part of the country.

It came as thousands of City workers braced themselves for a wave of job cuts in the wake of the credit crunch.

About 6,500 bankers and fund managers are likely to lose their jobs in the coming year and bonuses may fall by around a fifth, according to the Centre for Economic and Business Research.

Savills, which specialises in selling homes worth £1million or more in London, predicted the amount of City bonus cash flowing into the top end of the market would fall by 60 per cent next year. This would lead to six months of falling prices in central London, it said.

Savills blamed a loss of confidence in the housing market among financiers, accountants and lawyers, many of whom are now ploughing their money into hedge funds and other investments.

The fall in house prices in the capital is the starkest evidence yet that the decade-long housing boom is coming to an end.

It follows six interest rate rises since August last year to a six-year high of 5.75 per cent. Confidence has also been hit by the crisis at Northern Rock.

Average prices across the whole of London fell 0.2 per cent to £316,000 this month, while the average cost across England and Wales was down 0.1 per cent to £176,100, the first fall for two years.

The monthly fall meant prices are now just 4.4 per cent higher than they were a year ago.