Red alert on homes as London's fringe areas are looking at 10% price slump

Meanwhile, investors are no longer convinced property is a good way to make money. Indeed, just £2 billion of City bonus money is expected to be ploughed into bricks and mortar this coming year compared with £5 billion in the past year, reflecting both lower payouts and a loss of confidence in the market.

Yolande Barnes, director of research at Savills, said there will be a marked shift from "discretionary purchases" including buy-to-let flats and second homes to "needs-based purchases" such as bigger homes for expanding families.

Experts say family homes and large houses in the most sought-after areas of London are well placed to weather the storm as wealthy buyers focus on quality.

Ian Springett, chief executive of property search website primelocation.com, said that while traditionally wealthy areas such as Belgravia, Mayfair and Knightsbridge will see prices rise by 10% or more next year, the likes of Balham in south London and Camden in north London could see prices fall by the same amount.

Estate agent Savills has already seen a shift in demand for homes on its books. In March, before the credit crunch hit, between eight and 10 potential buyers showed interest in each Savills property worth between £250,000 and £1 million - the mainstream housing market and the top end of the flat market - while between five and seven went in for homes worth more than £2 million.

Savills is now getting just two or three applicants per property in the £250,000 to £6 million price range and as many as five for homes worth over £6 million.

Barnes puts it down to "an international wall of money" chasing London's best houses. "What we are looking at is a market being driven by high net worth overseas individuals," she said. "What is important at the very top end is not borrowing or interest rates. It is not even salaries. It is global wealth and global equity.

"If money is still being made in India, South-east Asia, China and the Middle East it will be positive for as long as London remains a desirable location. We are still going to see growth at the top end." Below the £6-million-plus market, the boom of the last three years has also been driven by City bonuses.

Although Goldman Sachs bankers are enjoying a bumper year, the total bonus pot in London is forecast to shrink from £8.8 billion to £7.4 billion.

What City bonus money is ploughed into property will again head towards the top end of the market and the most desirable areas, such as Holland Park, Chelsea and South Kensington.

Some will also head to slightly cheaper alternatives such as Wandsworth, Fulham and Putney - but with £3 billion less expected to be spent, demand will soften and house prices will stagnate or even fall.

Higher mortgage costs have also dampened demand for homes across the capital, particularly outside the cash-driven market of central London. Although the Bank of England cut interest rates last week for the first time in more than two years, mortgages are still more expensive than they were a year ago and ever harder to come by as a result of the freeze in the money markets.

Fringe areas on the outskirts of some of London's most expensive districts, which saw prices rise sharply towards the end of the recent boom, are now looking vulnerable. "Wherever gentrification has been late to arrive, these places will be the most vulnerable," said Barnes.

However, with supply unable to meet demand, the current slowdown is seen as a much-needed correction rather than a crash, and the current mood is one of gloom not doom.

"The gentrification of London is like the tide," said Barnes. "It comes in and goes out but when it comes in it gets a little bit bigger each time."