The property market is careering towards a longer and deeper downturn than expected, according to Savills, the quoted estate agent, which yesterday reported that prices were falling even in the formerly resilient smarter London postcodes.

Prices have subsided by 7.5 per cent this year and could drop another 8 to 9 per cent over the next 12 months.

Jeremy Helsby, Savillss chief executive, said: People are not buying because they think that property will be worth less tomorrow: buyers and sellers are in a kind of Mexican stand-off.

However, London could be the first location to start to emerge from the slowdown, recovering more quickly than the rest of the UK.

The gloom is spreading to manor houses and estates, which were unaffected until recently by the malaise elsewhere. Transaction volumes in the whole residential market have fallen by 45 per cent since July 2007.

Mr Helsby said that properties of 5 million plus were the only part of the market standing firm. He said: The super prime market is very, very strong. There is huge demand driven by Middle Eastern investors.

Elsewhere, in a markedly downbeat trading update, Savills said that the return of confidence depended on the mood of financial markets which showed no sign of improvement.

UK tenant demand is good in Savills commercial division, but rental growth is subdued.

Asia remains the strongest performer among Savills International commercial businesses; Europe is caught up in the credit squeeze. Mr Helsby said that its US business continued to perform in line with expectations.

However, on a rare note of optimism, he added: The US will come out of this before the rest of the world.