The owner of a central London flat has knocked almost £1 million off the asking price in an attempt to sell as the credit crunch tightens.

The news is further evidence of the weakening of the property market, and comes after figures from the Nationwide Building Society showed national prices fell by 2.5 per cent last month, the biggest fall since the recession of the Nineties.

The Hyde Park mansion flat went up for sale for almost £3 million late last year when the market was still buoyant. Now, almost eight months later, the flat has failed to sell and is offered for just under £2 million.

A poll by the Evening Standard found that owners across the capital are being forced to reduce prices by hundreds of thousands of pounds to tempt buyers.

Experts say some sellers had become too optimistic about the value of their homes after almost a decade of strong price increases, while buyers are concerned about the prospect of a price crash and are having difficulty finding affordable mortgages as banks cut back on lending.

Estate agent Lloyd Coleman said: "I have been in the business for 13 years and have never seen it so tough." He believes part of the problem is agents encouraging sellers to overprice their homes to win their custom.

He has found many people have given up attempting to buy and are either renting or extending their properties, leaving the sales market to stagnate.

"It is definitely a rental market at the moment," said Mr Coleman, who runs Colemans Residential Sales and Lettings in Finchley.

"Property is selling if it is priced right, and we are still getting record prices for one-bedroom flats. But if you have a three bedroom house to sell for half a million, and you want a four bedroom which will cost you £650,000, you might be better off doing a loft conversion and staying put."

Jim Falconer, of the Totteridge branch of Winkworth, said: "We are taking on good houses, but the problem is there are so few buyers. There are houses that are selling, but just not as many."

Helen Koulle, 51, has been trying to sell her four bedroom period house for almost six months. She has now reduced its price by £65,000 and it is now on the market for £515,000. She said: "I didn't want to reduce it but the agent said it was the best way to sell and we have had more viewings since."

One buyer did make an offer on the house - but backed out after failing to get a mortgage. Mrs Koulle, a housewife from Finchley, said: "It is quite worrying. We want to downsize, but it is all very difficult."

Andrew Hunt, sales manager of Kinleigh Folkard & Hayward's Muswell Hill branch, said: "If a property comes on at a realistic level, reflecting the current conditions, it is likely to get near or at the asking price.

"However, sellers who want to test the market by putting it on at a rather optimistic level, will have to reduce the asking price, often more than once, to gain interest. We recently sold a house which attracted no interest when it was priced at £1.5 million. When it came back at £1.425 million there were viewings and an offer, which was accepted, at £1.4 million."

Seema Shah, of consultancy Capital Economics, said: "With the housing market correction undeniably under way, attention is now turning to how deep it will be. Our forecast for a 20 per cent decline in house prices by the end of 2009 is firmly on track."

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