This is worsening the already short supply of property in prime Central London, reports property consultants Cluttons.
Residents of these areas have seen strong growth in the value of their homes over recent years, with a 7.9% increase in prices recorded in Central London during 2011.
Many of those whose incomes have not been impacted by the economic downturn have taken advantage of low interest rates by overpaying on their mortgages and boosting their equity.
Bonus money is being spent more wisely on paying off existing loans or financing the next property purchase, rather than on luxuries such as cars and holiday homes.
Keen to move up the ladder while also increasing their stake in the Central London residential market, homeowners are opting to keep their existing property as an investment and rent it out for additional income.
This has contributed towards a further contraction in supply in the last quarter, when the number of homes for sale fell by nearly one fifth (18.9%).
James Hyman, Partner for residential sales at Cluttons, said:
“Central London homeowners have taken advantage of a golden opportunity to pay down loans over the last few years, are finding themselves in the enviable position of moving up the ladder without selling their existing home. This is worsening the supply shortage even further.
“Central London property is, without doubt, still seen as an attractive investment and people are choosing to keep their cash in the market.
"We have experienced our busiest January on record, on the back of our busiest December, with most properties achieving a number of offers at, or close to, the asking price."
