Savills warns sales of expensive homes are down by 40% in London this year

Confirmation the top end of the property market, especially in London, will not escape the worst effects of the credit crunch came from a leading up-market estate agent yesterday.

Savills said its Prime Central London index had fallen 1.5 per cent in the year so far, on top of a 2 per cent fall in the final quarter of 2007. Across the country as a whole expensive property was down 0.5 per cent in the first quarter. Sales of houses worth between £1m and £5m in the capital have fallen by 40 per cent over the past few months.

Apart from the generally subdued mood and shortage of credit for mortgages, the reduced level of bonus payouts for City workers will also have had an effect on high end flats and houses in the most prestigious postcodes. Anecdotally, some claim evidence that the departure of wealthy "non-doms" as the Government's £30,000 levy comes into force will also depress real estate values.

Savills chief executive, Jeremy Helsby, said: "There is a lack of sellers and buyers lack confidence – it is all about sentiment. There's job uncertainty in the City. At the moment we are seeing volumes 30 per cent to 40 per cent down – the trend has got worse over the last two months."

Mr Helsby added he was "definitely looking at trimming his workforce".

Savills also pointed to the dire state of the commercial property market throughout the country. Demand for London offices has dropped "significantly", while nationally the demand for retail premises is also "subdued".

The company's view reflects serious warnings from the Bank of England on the risks the weakness in the commercial property market poses to the banking sector and the wider economy as a whole.

In the Bank's "Financial Stability Report", published last week, officials said the 16 per cent fall in commercial property prices from their June 2007 peak "has surprised many in the market because, unlike the sharp falls experienced in the early 1990s, it has occurred against a benign macroeconomic backdrop".

The Bank estimates the commercial banks will need to write down £2.9bn of losses on commercial mortgage backed securities and on bad loans.

While such figures are not "critical", the Bank added: "The effect on UK banks would be greater if, however, an increase in default rates on commercial property lending coincided with a general deterioration in the health of the corporate sector, as it did in the early 1990s".

By contrast, Savill's Asian operations were performing strongly in the market.

"Many of the long-term drivers which have attracted investors to Asia remain, including population growth, rapid household formation, urbanisation rates and a burgeoning middle class", the company said.