Time was, if you sold up in London and moved out, you would never be able to afford to move back again. That may no longer be the case, however, amid growing signs that the slowdown in the capital is proving faster than anywhere else in the country.

Rightmove, the property website, revealed last week that asking prices in London in July fell 5.3% on the previous month, against 2.3% in England and Wales. “London, in particular, appears to be having its own special summer sale, with more than £21,000 off in a month, from £400,258 to £379, 162,” says Miles Shipside, the site’s commercial director. The Land Registry data, based on sale prices, also showed the rest of the country outperforming London. Prices in the capital fell 2.5% - against 1% in England and Wales – in June, the latest date for which its data is available.

Not surprisingly, given its size and diversity, the picture in London varies from area to area, but research by Chesterton estate agents for The Sunday Times (Click here to see graphic) shows prices in 24 of the 32 boroughs have dropped in the past quarter and 15 have fallen year-on-year (even though prices in the unlikely trio of Camden, Hackney and Kensing-ton & Chelsea are still on average up more than 10% on this time last year).

The mood seems especially gloomy on the leafy streets of southwest London, a magnet for affluent, middle-class families with children. One partner in a law firm in Richmond, who declined to be named, says she had six sales – out of 30 in the pipeline – fall through in the first week of this month alone. “It’s the worst I’ve ever seen it in 23 years of conveyancing,” she says. “This August, we have only taken on about five matters each here, whereas we’d normally each take on 20-30.

“You can’t blame people for holding back, but there are some good bargains to be had,” she says. “Some people are very keen to sell, and accepting extraordinary drops.” For example, she has seen £100,000 knocked off houses asking £500,000 and £600,000.

So could this be the time to pick up a bargain in the London property market? Jason Tebb, a director at Chesterton, notes that prices in Surrey, a popular alternative to London for those who work in the capital, are holding up quite strongly. In Guildford, for example, they fell just 0.4% in the past quarter. But Tebb suggests any of the market town’s residents thinking of heading back to the capital should be quick – “before London prices start to encourage a horde of buyers back to the capital, pushing prices back up, and before Surrey prices start to fall, too”.

Richard Davies, an area director at Chesterton, says there are signs things could be bottoming out. “Buyers are being fickle, withdrawing on the day of exchange for no particular reason, saying, ‘I’m not sure,’ ” he says. “Last week was the first in four weeks when we didn’t see a single sale fall through, so it seems to have stabilised. There was a lot of activity compared with July and early August, with regard to applicants and sales agreed, so I’d tentatively say that things are picking up.”

He too has noticed an increase in interest from outside London. “Our Wimbledon manager reports a few examples of people who have sold a house in the country, in Surrey or Sussex, and are now thinking they can afford to move back, when 12 months ago they couldn’t. The differential is changing. In the long term, if you want to move to London or upgrade, it’s worth doing it now because you will benefit when the housing market turns again, though I don’t think that will happen immediately. There’s a lot of stock on the market.” Opinions differ on where is best to buy. Beyond the southwest, Davies suggests looking at Docklands, where many overstretched buy-to-let investors who bought into new developments have either been repossessed or have walked away and forfeited their deposits even before getting their hands on the keys. With mortgage finance still tight, however, there is a danger – especially with new-builds – that you could be buying into a market that still has a way to go before hitting the bottom. An alternative strategy is to try to identify areas that will buck the downward trend. A report by Rightmove says areas along the route of the new East London line extension, which is due to open in 2010 and will eventually run from Highbury & Islington in the north to New Cross, Crystal Palace and West Croydon in the south – should hold up well.

Pauline Black, 61, is among those hoping to take advantage of the slowdown to get her foot on the capital’s housing ladder. Two years ago, she sold her house in Islington to downsize to Dor-set. Friends lent her a cottage near Dorchester while she looked. “It was lovely, but I needed a car to get to the shops,” she says. “And there were no streetlamps.”

She missed her old life, but, as she needed some of her capital to live on, didn’t think she could ever afford to move back. Now she’s not so sure. “I have put all my money in high-interest accounts and am renting in Richmond on the proceeds,” she says. “I’m waiting for prices to fall further and am prepared to wait a few years. A two-bed flat that might have cost £550,000 last year is already about £500,000. I’m hoping it will come down a lot more.”

Catch them while you can

Fulham - reduced by £99,000

A four-bedroom terraced house with two reception rooms and rear patio garden, reduced last week from £999,000 to £900,000; 020 7731 4448, www.wellingtons.com

Docklands - reduces by £125,050

On the 13th floor of the Orion Point development, this two-bed flat with secure parking and gym is down from £975,000 to £849,950; 020 7510 8300, www.chesterton.co.uk

Richmond - reduced by £2m

This recently renovated Grade II*-listed, eight-bed, eight-reception-room home on one acre is for sale for £5m; 020 8940 1575, www.featherstoneleigh.co.uk.

Times recommends

• Second homes: credit crunch casualty or money-spinner?
• How I built my own sliding house
• Top 10 incentives for house buyers