London’s house price boom is over and there is a one in ten chance of a 1990s-like crash, the surveyors’ trade body said yesterday.

Prices in the capital are expected to stay flat for the whole of next year, the Royal Institution of Chartered Surveyors (RICS) has said. It earlier forecast growth of at least 3 per cent. The Paragon Group and Bradford & Bingley, two of Britain’s largest buy-to-let lenders, said that house-hunters nation-wide were putting off purchases.

The turmoil in the financial markets in the past month has already taken its toll on asking prices in London. The higher cost of borrowing and an expected tightening of lending criteria for new mortgages could deter some smaller buy-to-let lenders from buying and force more potential first-time buyers into rented accommodation.

Figures out this week from Right-move, the property website, showed that property values in London fell 2.5 per cent last month, the biggest fall for three years, in contrast to government figures last week showing that house values in London had risen by 19 per cent in the year to July.

Simon Rubinsohn, chief economist at the RICS, said: “Essentially I do not think the economic background is in place for a material fall in prices but you will get the odd few months when there are price falls. Our view is that by the end of next year you will see flat year-on-year growth. That is not a fall in prices, just a gradual ease-off.

“The likelihood of a material down-turn in the property market is still quite slim. You need an extended period [of uncertainty in the credit markets]. If you got to the year-end and this credit sentiment persisted, then you would get more concerned that elevated rates of interest would stay for longer.”

The recent collapse in America’s sub-prime mortgage market – more expensive loans sold to those with poor credit history – has made it far more expensive for British banks to borrow on the wholesale markets, as Northern Rock found to its cost. Banks are now passing the extra borrowing costs on to new borrowers.

Nigel Terrington, chief executive of Paragon, Britain’s third-largest buy-to-let lending firm, said that he was pencilling in a “dull year” for Britain’s housing market next year. Mr Terrington predicted that the cost of variable-rate mortgages for all lenders would rise by about 0.2 per cent over the coming months, as the crisis in the American housing market takes its toll on British banks.

Andy Wiggins, head of Bradford & Bingley’s buy-to-let division, predicted that one of the big fallouts from Northern Rock would be “fewer lenders stretching their lending criteria”.

Kensington Group, a specialist lender to Britain’s sub-prime market, yesterday introduced a new cap on its lending so that new borrowers could only take out loans worth up to 75 per cent of the value of the property, compared with 90 per cent previously.