The collapse of the housing market is spreading to central London as all but the very richest are hit by the credit crunch.

Upmarket estate agent Knight Frank today said homes in the capital valued between £1 million and £5 million are now worth 1.6% less than they were a year ago.

It was the first annual fall in house prices in what Knight Frank calls "prime central London" since 2003 and a sign that the crisis in the housing market has reached the heart of the capital.

Prices dropped by 1.3% this month alone.

Liam Bailey, head of residential research at Knight Frank, said the cheaper the property, the more vulnerable it is to price falls, with flats in particular feeling the pain.

Homes worth under £1 million are now worth 9.2% less than a year ago and overall sales have fallen 46%.

Rival estate agent Savills yesterday said sales in London were down 45% and prices 7% this year.

Building society Nationwide reported the first double-digit fall in prices since 1990.

But Bailey said: "Performance is by no means uniform.

"More-expensive properties, notably houses, continue to hold their value far better than cheaper properties, which in prime London tend mostly to be flats." Knight Frank said the most expensive parts of London are proving immune to the crisis.

Homes priced between £5 million and £10 million are worth 1.3% more than a year ago while those over £10 million have risen 19% in value. In Mayfair, prices are up 10.3%.

"Over the past few months, we have noted that super-prime properties worth more than £10 million have proved immune from the downward trends elsewhere," said Bailey.

"There are now signs that the gap between this sector and the rest of the market is growing.

"It is clear that the buyers of such homes have been relatively unaffected by the credit crunch," he added.