Activity in the London housing market has dropped dramatically since the attacks on the US two weeks ago. Estate agents say few new buyers are registering and existing buyers are not viewing properties.

Some sales are continuing to go through, but agents selling expensive homes in new developments report offers being withdrawn.

"The market has died on its feet," said Howard Elston of Strutt and Parker. "It's a repeat of what happened when the Gulf war started in 1990."

There are reports of developers being forced to pull out of land deals as their bank's valuation figure fails to meet their agreed purchase price.

In the auction rooms, where rundown property had been attracting a premium from developers and investors, lots have been selling for less than the guide price, or not at all.

Andrews and Robertson, auctioneers in south-east London, sold less than 70 per cent of their stock at their most recent sale.

Graham Gould, who runs a residential investment business, said some lots went for bargain prices. "The fact that the wholesale market has lost confidence, coupled with the fact that some developers are offering incentives to buyers, indicates that the market has turned," he said.

Demand from City-based buyers for London houses was already falling as a result of the economic slowdown. That has started to have a knock-on effect on the country house market, where London buyers have fuelled strong price rises.

"If the seller in London gets 10 per cent less for his house in Wandsworth, he will bid 10 per cent less in the country", said Henry Holland-Hibbert of Lane Fox.

Estate agents are bracing themselves for a tough autumn. Ian Perry, of the Royal Institution of Chartered Surveyors, said the climate was bound to change. "The current international uncertainty is undoubtedly going to have an effect on the housing market, though low interest rates will help support prices."

The latest institution survey of the housing market shows house price inflation remained strong over the summer.

Fifty-two per cent more surveyors reported an increase in prices over the three months to August than reported a fall, after allowing for seasonal adjustments - compared with 53 per cent in the three months to July.

Surveyors were most positive in the north, where 73 per cent more said prices rose, and least positive in London, where 27 per cent more reported an increase.

Research by Gerrard, the fund manager, on the relationship between share and house prices suggests the 10 per cent fall in UK equities since the US attacks is likely to knock 3 per cent off UK property prices and 4 per cent off London prices over the next year or so.

But London rental agents report increased inquiries from New York for property to rent. Clemmie Bailey of Lane Fox said some companies that had lost office space were relocating staff to London and looking for tenancies of six months to a year.