Many buyers who bought at the peak will struggle to refinance at a rate they can afford, due to the loss of equity in their homes and the stricter loan-to-value (LTV) requirements of lenders.
Those who bought with a 90-100% mortgage will now only be able to get a LTV of 75-85%. A potential drop in value upwards of 10% means that a considerable amount of additional equity would be required to refinance.
Cluttons believes this could lead to the first wave of prime central London forced sales, creating a sudden surge in supply and potentially a second house price dip of around 5% for the coming year.
James Hyman, Partner for Residential Sales, said: "The unstable balance between supply and demand in central London has been a major factor in creating dramatic price swings.
"The market has experienced various extremes, the latest of which being a total lack of supply pulling prices up quite sharply. Those selling now are achieving very close to asking price, and in many cases values just a few per cent below the 2007 peak.
"If we were to see a steady stream of properties coming onto the market now, it would help to keep prices stable, but there remains a ‘wait and see’ mentality, even from those falling into mortgage difficulties.
"There will come a point when people simply cannot hold on any longer and there is a real danger of this coming to a head in the autumn as people come off two-year mortgage deals and realise they need to raise a significant amount of equity to keep their home."
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