The credit crunch has taken its toll on prime central London housing after annual growth levels fell in the third quarter – the first quarterly slow down in two years, according to Savills.

In its annual residential market briefing to City banks this week, the firm said third quarter growth was 3.2% compared with 9% in the first quarter and 6% in the second.

Given the weaker backdrop in financial markets, Savills is expecting no growth in the final quarter and has lowered its overall forecast for 2007 from 22% to 18%.

But the firm still expects prime London residential property to outperform other UK housing markets and continue to attract the attention of wealthy buyers from overseas, particularly at the £10m-plus range of housing.

Director Patricia Luck-Hille said: ‘The global financial slow down is going to impact on volumes but London is going to look a pretty safe bet compared with the rest of the world.’

Luck-Hille said: ‘We’ve probably seen more [sales of] £20m-plus properties this year than we ever have before.’

However the slow down is more pronounced in London homes worth up to £5m, with growth hampered by lower City bonuses.

Luck-Hille added that caution has spread to residential investment, which has seen yields of lower than 4% for prime property and sub-5% across greater London.

‘There’s still an appetite to invest but buyers are more selective. Unless we see interest rates starting to fall we think this could be a bit of a tricky market,’ she said.