House prices in Prime Central London fell by 1.5% in the first quarter of 2008 in response to reduced job security and earning expectations amongst City Buyers and the uncertainty regarding the introduction of the non doms tax changes, according to figures released today by Savills. As a result year on year price growth has fallen to 5.3% from 27.6% a year earlier.

The most significant falls have been seen in the £1m - £2m price bracket, the domain of City employees, where falls of 2.7% were recorded.

Lucian Cook, Director Savills residential research comments, "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."

We expect some demand to shift into the rental sector. In contrast to capital values, rental values rose by 1.5% in the first quarter of this year and for the first time in two years annual rental growth (6.3%) exceeds that of capital value. As a result net rental yields are set to increase from an unsustainable low of 1.9% at the end of 2007.

Meanwhile the £5m plus market continues to show price growth, with values rising by 1.7% in the quarter. "The softening of the non doms tax legislation and in particular the measures introduced to ensure that the legislation will not be retrospective in nature, means that there will be a trickle of ultra high net worth non doms who relocate from London rather than a flood.

Jonathan Hewlett head of Savills London residential agency comments, "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."