Savills, the property agency, has given warning of sharp price falls for multi-million-pound Central London flats and houses this year and next, reversing a forecast made last autumn.

Fears that City banking bonuses for the coming year will be a fraction of the last £7.4 billion annual payout is expected to put a further chill on demand for central London housing in the £1 million to £5 million bracket. House prices in this price bracket have already fallen on average 1.5 per cent during the first three months of this year.

Those price falls come after a decline of 2 per cent during the last three months of 2007, according to Savills. The property agency expects prices to continue falling quarter-on-quarter for the whole of 2008, ending down 4 per cent for the year.

Last September, as the credit crunch began to unfold, Savills predicted prime Central London house prices to recover in the second half of 2008 and forecast a 5 per cent rise over the year.

Until last summer Savills had expected price rises of about 14 per cent during 2008 for prime Central London.

Worst affected this year will be flats in the Kensington, Chelsea and Notting Hill areas in the £1 million to £2 million price bracket. This was the favoured purchase for young bankers, but many are now more worried about keeping their jobs than the size of their bonus at the end of 2008, according to Lucian Cook, director of Savills residential research.

Flats in this price bracket have already fallen by 2.7 per cent between January and March. If that rate of decline continues, a flat valued at £2 million in January could end up selling for £200,000 less at the end of December. Mr Cook said: “When we did our forecast in September we were looking at the credit crunch having a minimal impact with bonuses only being marginally affected in the short term. Now we believe it will have a deeper longer impact and that will inevitably affect the London market for City buyers.”

Prices of homes in the £5 million-plus bracket, so-called super-prime, rose 1.7 per cent over the first quarter as the sector’s reliance on cash-rich overseas buyers meant that it remained immune to the credit crunch The Centre for Economic and Business Research, an independent think-tank, this week upped its forecast of City job losses to 10,000, a rise of 1,500 from their previous update in January.