Favourable interest rates drive international demand in luxury London property market, says expert

Cluttons said that it had recorded a fall in the number of cash buyers of property in the "prime" area of Central London last year. It said that more than half (51.8%) of the properties sold in the area last year were being mortgaged, whereas just 25.8% of the properties bought in 2011 were being mortgaged. Whilst nearly three quarters (74.2%) of the properties sold in 2011 were bought by cash buyers, that figure fell to 48.8% last year, it added.

The firm said that reductions in the cash bonuses being offered by banks, coupled with the easing of concerns over the collapse of the Eurozone – which it said had prompted investors to "plough cash" into the London property market last year – had "dented the appetite" of young professionals working in the City to invest in residential properties in Central London and caused the changing dynamic in the market.

However, commercial property law expert Suzanne Gill of Pinsent Masons, the law firm behind Out-Law.com, said that there was "strong demand" in the luxury homes market in Central London and that this had been "driven by international buyers". She said that data published by the Land Registry had confirmed that there had been an increase in the number of transactions over £2m and in overall prices in the area.

"International buyers are motivated by London as a world city, the resilience of property prices in prime Central London, and the ease with which properties like that can be bought and sold," Gill said. "These homes are very liquid assets."

"Borrowing against them is a sensible measure in a low interest rate culture. It mitigates the effect of inheritance tax and allows owners to secure better returns on their capital in other parts of the world," she added.