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The Trickle-down Effect - The Sunday Times May 07

A six bedroom town house on Thurloe Place, South Kensington, sold in March last year for £2.35m, then in October for £2.79m. Now, thanks to a lick of paint and a new kitchen and bathrooms, it is under offer for almost £5.5m.

Countless other examples abound across what agents call prime central London.

At first sight, such excesses may seem of little more than curiosity value to the rest of us, as we struggle to pay the mortgage on a modest semi in the suburbs and beyond. Yet a new study shows that the vast amount of foreign money flooding in to the top end of the capital's housing market is causing ripples further afield that may counteract the effects of rising interest rates.

The principle is simple, according to Yolande Barnes, Director of Savills Residential Research, which carried out the study. "there is a large amount of cash being funnelled into London, mainly as a result of the high number of foreign and overseas purchasers." she says.

"We have seen anecdotal evidence of how this gets exported to other parts of the country. We see growth in prime home counties market. Equity ripples outwards, finding its way down the housing ladder."

According to this theory, people who sell to Russian Oligarchs or City-bonus boys tend to put a substantial amount of the proceeds back into property. But they often split it, buying a smaller place in the same area and somewhere else out in the country, perhaps, or a cheaper flat or two for their children.

This drives up prices in those sectors of the market, putting more money into the pockets of sellers - who, in turn, will also probably want to buy property, and, again, maybe more than one home. And so the money cascades down.

Savills is sticking to its guns, however, It believes that the UK market as a whole will end up 7 per cent higher this year, although it admits that prices will rise more slowly if base rates stay at 5.5 per cent or higher for more than three months.