Residential property prices in the UK could fall by up to 20% as a consequence of the Chancellor George Osborne’s buy-to- let tax hikes, according to a new report.

A sigificant decline in the volume of buy-to-let properties, largely as a result of the 3% stamp duty surcharge, could place downward pressure on home prices, causing them to fall sharply, warns the report by Deutsche Bank.

“The feedback we are getting is that the tax changes on buy-to-let are having a negative impact on mood in the market. It’s not beyond the realms of plausibility that we will see a slowdown,” said Simon Rubinsohn, chief economist at RICS.

London is expected to be worst affected by the new levy, with the report forecasting that the volume of buy-to-let homes acquired in the capital could halve as a result of the changes, delivering a ‘major shock’ to the city’s housing market.

The latest official figures show that London saw an annual price increase of 14.5% which takes the average property value to £470,025.

London experienced the greatest increase in its average property value across the UK over the last 12 months with a movement of 14.5%, while the North West saw the greatest monthly growth with an increase of 2.3%.

Oliver Reiff, co-author of the report, told the Daily Mail: “You also have to bear in mind that because of new mortgage regulations in the pipeline, many landlords may not be able to take out as much debt as before.

“This is likely to see fewer landlords buying properties, which will be a shock to the London market.”