According to Savills’ Research, weaker financial markets are already leading to a cooling in the performance of the prime Central London property market. Quarterly growth was recorded at 3.2% in the third quarter of this year, down from 9% in Q2 2007.

Lucian Cook, director of Savills’ research, says: “The tempering of growth is a direct reaction to uncertainty in the City with purchasers expressing more caution pending a clearer picture of future job security and bonus expectations.

“There have been some incidences where buyers, particularly those employed in the City, have withdrawn from the market in what is seen by Savills as a natural reaction to current uncertain circumstances. Even where deals have fallen through, pent up demand remains such that there is generally a competitive (although less frenetic) bidding environment and other buyers have been coming forward.”

Savills anticipates this increased caution to be a feature of the market for the remainder of 2007 and in the first part of 2008, with minimal growth in values likely in the last quarter of this year. In light of this, Savills has decreased its base rate scenario forecast in prime Central London for this year from 22% to 18%. This assumes that there are limited redundancies in the City and that the current crisis of confidence in the financial sector is short-lived.

Cook said: “Should the reduced confidence become deeper-rooted and redundancies more widespread, we would anticipate that there is a possibility of house price falls in the final quarter and much lower growth next year. Any prediction of a house price crash is definitely unfounded at this stage as the fundamentals of the market are sound and no serious economic commentator is predicting the recessionary environment that would precipitate one.”