The Royal Institution of Chartered Surveyors (Rics) said "London indicators are going into reverse" as it reported the most rapid decline in inquiries from buyers in the capital since April 2008, while the number of agreed sales fell to 16 per surveyor from 19 in June.
Across the UK, a fall in the number of would-be homebuyers is set to lead to a reduction in house price growth over the coming months, the professional body for surveyors and estate agents said, as supply begins to outweigh demand.
Simon Rubinsohn, chief economist at Rics, said: "A range of policy initiatives adopted by the Bank of England in recent months – alongside heightened expectations surrounding a turn in the interest rate cycle – has clearly had an impact on sentiment in the market.
"The shift in the mood music among potential buyers in the London market has been particularly pronounced but that is in a sense consistent with the move to a more sustainable market in the capital."
Separate figures from chartered surveying group e.surv, which undertakes valuations for more than 20 mortgage lenders, also showed a fall in buyer activity during the month.
The cooling demand will be welcomed by policymakers, who have tried to take the heat out of the market with proposals for curbs on mortgage lending, set to come into force in October.
Rics said its members now expected property values to increase at a faster rate outside London over the next year than within the capital.
House prices had been powering ahead in London, with some areas recording increases of more than 20% over the past year as buyers chased the small number of homes on the market, but in recent weeks there have been signs of a shift. On Tuesday, estate agent Haart said the supply of properties in London had risen by 32.3% over the year but demand from buyers fell by 15.7%.
Generally, Rics said there was evidence that surveyors were "paring back their longer term bullishness". Across the UK as a whole, they predicted 4.7% growth in house prices in the next year, down from 5.9% in March, while in London the forecast has dropped from 9.3% to 4.6%.
The fall in buyer inquiries across the UK takes the level back down to that last seen in January 2013, before the government launched its Help to Buy scheme for homeowners with small deposits, and before better mortgage availability and improved confidence in the economy started to fuel the market.
Despite the slowdown in interest from buyers, across the UK the number of sales agreed by each surveyor remained higher than at the start of this year at 24.6 over the month.
In July 2013, the figure was 17.6. Rics said it was unclear if the change was a "pause for breath" or a genuine turning point.
The implementation of new rules on borrowing, introduced in April in the mortgage market review (MMR) did coincide with a fall in mortgage approvals, and Rics said this could be a factor in the fall in inquiries.
Also, affordability has become stretched as prices have risen at a rate far higher than wages and the Bank has signalled it will step in to curb risky mortgages, proposing a cap on loan-to-income ratios from October.
Peter Rollings, CEO of London estate agency Marsh & Parsons, said the "unbelievable pace" of the housing market at the start of 2014 could not have been maintained. "The process of buying and selling property in the capital is noticeably less fraught and off-putting than it was a couple of months ago," he said.
"Currently, the key component stabilising the London market is an increasing supply of property, which has surged 52% since the beginning of the year.
"This natural return to more normal trading conditions, where buyers can enjoy greater availability and sellers are inspired to sell now that they have more choice for their onward purchase, is a step in the right direction and will ensure long-term energy and activity in the market."
The e.surv research, which is based on mortgages approved during the month, showed that 66,279 home loans were granted, a 1.4% fall on June's figure and the strongest July total since 2007, when there were 112,291.
The number of loans taken by buyers with a deposit of 15% or less was up by more than half year-on-year, at 11,533 and accounted for 18% of approvals.
In London, the proportion borrowing at that level was just 8%, due to the monthly cost of servicing a large mortgage.
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