Prices at the higher end of London’s property market, thought to have been largely immune to recent ructions in the wider industry, have suffered their first quarterly decline since 2003.

Savills, the estate agent, has revealed that the price of prime property – that valued at more than £1 million – had fallen by 2 per cent in the last three months of 2007.

The absence of a spending spree by those earning large City bonuses has been blamed for the poor quarterly performance across the prime London market.

Last year, £5.5 billion of the £8.8 billion City bonus pot was poured into homes. This year Savills thinks that only £2 billion, from a total fund of £7 billion, will find its way into the property market.

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Lucian Cook, a director of research at Savills, said that the fall in prices had occurred progressively over the final three months of 2007 “as the full implications of the credit crunch have become apparent. The market has been influenced by City bonus expectations and the outlook for job security in the financial sector.”

Mr Cook said that the prices were holding up better than expected: “This small fall comes as no surprise. We anticipated a fall of 3 per cent in the final quarter of the year, in expectation that the market would react in a similar manner to previous financial shocks.”

Confidence has suffered particularly among buy-to-let investors and Savills believes that bonus cash will be spent largely on primary residences. Mr Cook said: “Like a second home, an investment property is the ultimate discretionary spend.”

Those owners who invested in substantial homes in good Central London locations will take comfort that, despite the late declines, prime property prices were up 16.3 per cent on last year. Mr Cook said that values in areas of southwest London, such as Fulham, Barnes, Putney, Wandsworth and Richmond, where much City cash has been spent in the past year, had proved resilient. Prices rose 0.6 per cent in the last quarter.

Neil Chegwidden, head of research at Cluttons, the estate agent, said that the decline across Central London of 1.3 per cent was “the greatest quarterly fall since the start of the Iraq war in early 2003”.

Savills expects that prime Central London property will recover, to increase by 5 per cent this year. Knight Frank thinks that prime property will slightly outperform the rest of London, which it tips to grow by 3 per cent this year.

Savills said that price growth for super-prime homes, worth £5 million or more and typically in locations such as Mayfair, Kensington and Belgravia, was now at 2.5 per cent, down from 13.7 per cent a year ago.

Super-prime remains the most resilient part of the property market, the agent said, yet the annual rate of growth is now at only 29 per cent, down from 50.16 per cent a year ago.

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