House prices in Prime Central London fell by 1.5% in the first quarter of 2008, due to uncertainty in the City, and the expectation of new taxes on non-doms appearing in the Budget, says a new report.

Savills says this has meant a fall in annual growth from 27.6% to 5.3%.

Director of Savills residential research said: ‘The prospect of continued job losses in the City resulting from the credit crunch is having a knock on effect on the demand for property. It is now fair to say that it is no longer a case of one or two quarters of price falls with values bouncing back shortly thereafter as was the case in 1998 and 2001.

The situation is looking much more like that of 2002 and 2003 with slightly more prolonged falls in prices and a period of low price growth for the following 12 to 24 months. Whilst we acknowledge that ultimately the performance of the sub £5million prime central London housing market will be dependant on the as yet unknown outcome of the credit crunch, we currently expect prices to fall by 4% in total this year, in addition to the 2% falls seen in the last quarter of 2007.’

Meanwhile the £5m plus market continues to show growth, as prices rose by 1.7% to March. In this bracket, the softening of the non doms tax legislation means that there will be a trickle of ultra high net worth non doms who relocate from London rather than a flood, which should ensure steady slow growth rather than a fall in prices instigated by a glut of property on the market.

Jonathan Hewlett head of Savills London residential agency added ‘Whilst new demand from overseas buyers has been tempered at this end of the market there are still oligarchs and non resident overseas buyers actively looking to buy in the Capital. Additionally because super prime London property remains a rarefied commodity we expect values to hold at this end of the market.’