House prices in the UK’s capital city are set to fall in 2017 thanks to Brexit, economists have warned.

The Centre for Economics and Business Research (Cebr) predicts that uncertainty in the market, sparked by Brexit negotiations, will trigger an average decline of 5.6 per cent over the coming year.

And London’s most expensive areas look likely to be the hardest hit by the fall out of the UK’s decision to leave the European Union.

Despite this, Cebr believes UK house prices will continue to increase at the reduced rate of 2.6 per cent, in contrast to 2016’s rise of 6.9 per cent.

Cebr economist Kay Daniel Neufield said she expected house price growth across the UK to slow considerably in the closing three months of 2016 as ‘nervousness and uncertainty’ started to show.

Fears that the government will opt for a ‘hard Brexit’ – where the UK relinquishes membership of the single market in order to gain control of immigration – are causes of concern for investors.

Growing inflation, shrinking employment, a weaker environment of business investment and a possible fall in demand from overseas buyers caused by restraints on immigration, were also expected to force down the prices of homes.

The problems facing the housing market were compounded by tax changes in April.