Luxury London property sees further decline

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The overall transaction value of luxury homes in prime central London locations has fallen by over 20 percent, according to a U.K. estate agent, signaling that a correction in the capital's booming housing market could be afoot.

The data, collected by high-end estate agent Strutt and Parker, showed that the overall value of properties transacted was down 21.1 percent in the third quarter of 2014, compared with the same period in 2013.

In the same timeframe, the value of properties under £2 million ($3.23 million) saw a decrease of 20.8 percent and properties in the £2 to £5 million price bracket saw prices fall 27.1 percent.

Homes worth over £5 million performed slightly better but still saw a decline of 15.2 percent.

As the U.K. heads into an election year in 2015, the uncertainty over the country's political future could deter buyers further. There is already a controversial proposal from the opposition Labour party for a "mansion tax" on all properties worth £2 million. The details of the proposal are still being worked out but shadow chancellor Ed Balls has said the levy would begin at £3,000 a year.

A similar pattern emerged in terms of volume sales, which were down 26.8 percent overall, with all price bands seeing a reduction in the number of transactions, the estate agent noted Tuesday.

Lulu Egerton, Partner at Strutt & Parker in Chelsea – one of the areas defined as "prime central London" (PCL) along with Knightsbridge, Kensington and Belgravia among others - said "there is no doubt that PCL property is in the midst of a price correction."

"After a spectacular year in 2013, asking prices had become inflated and they are now in a period of correction where prices are being adjusted down by around 5 percent to 10 percent as buyers become far more price sensitive."

Read more: UK house prices show further signs of cooling

Foreign buyers previously drawn to London property as a perceived "safe-haven" asset have retreated from the market, Knight Frank estate agents said in a report this summer. The high-end agent said that international buyers in 2014 have accounted for under half (47 percent) of the super-prime market so far this year, down from 64 percent in 2013 and 73 percent in 2012.

The data follows a period of sharp house price increases in the U.K -- particularly in London and the south-east. There are signs that the overall market is starting to cool down, however.

Read more: Appeal of London property wanes for foreign buyers

The Centre for Economics and Business Research forecast in a report earlier this month that U.K. house prices would grow by 7.8 percent this year but fall by 0.8 percent in 2015. In London, the CEBR predicted house prices would decline by 2.9 percent in 2015, the first decline since 2009.

The slowdown could have an impact on the U.K. economy as a whole, which is estimated by the IMF to grow 3.2 percent in 2014. Its recovery had been partly attributed to the boom in the property market so a slowdown could affect growth.

The slowdown should be kept in perspective, however, according to the head of Research at Strutt & Parker. "Whilst total values transacted in central London are markedly down on this time last year, we must have a sense of perspective. It is really not surprising that prices are stabilizing after the dramatic price increases we saw over the past 12 months," Stephanie McMahon said in the report.

She added a decline in prices had been seen before in the run up to a general election. "It is a recognizable pattern and we do not believe it spells doom for the property market in the long term."

Clarification: This story has been updated since it was first published to show that the overall transaction value for luxury properties has fallen.

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt