The latest Knight Frank Prime Central London Index for July 2010 shows that prime London property prices fell in July by 0.5% which is the first monthly price decline since March 2009.

Despite this prices are 23.4% higher than they were at their lowest point on the index in March 2009.

Liam Bailey, Knight Frank’s head of residential research, said: “The slowdown in the London market has been anticipated for several months, the bounce in pricing on the back of low interest rates and weak Sterling had driven prices close to peak levels, and in some cases above these levels.

“The market experienced a severe lack of houses for sale during late 2009 and early 2010, which helped to push prices higher. Since May demand has fallen back by 8% – anecdotally price rises have begun to encourage potential buyers to think about renting again – and supply has also risen (by 7%) as vendors look to take advantage of higher prices.

“A key indicator of the health of the market is the ratio of asking-to-achieved prices, which hit 97% in May and which is now 95%. Most agents across the capital believe that asking prices are between 5% and 10% higher than where the actual market is at the current time.

“This month’s price fall is only one piece of evidence, but allied to the decline in asking-to-achieved prices we believe that our forecast for around 5% price growth in central London for the whole of 2010 will be borne out, which suggests that prices will fall by around 3.2% during the final five months of the year.”