March 4 (Bloomberg) -- Luxury-home prices in London, the world's most expensive city for prime real estate, rose in February at the slowest rate in four months as the prospect of smaller bonuses at financial firms deterred some buyers.

The average price of houses and apartments costing more than 2 million pounds ($4 million) climbed 0.6 percent from January, Knight Frank LLC said today in a statement. The annual increase was about 24 percent, the smallest since September 2006.

``Uncertainty continues to circle around the financial markets on which London's prime market relies,'' said Liam Bailey, head of residential research at Knight Frank.

Banks and other financial-service companies based in London, having lost money from mortgage investment writedowns, may award smaller bonuses this year. The amount of bonus money invested in real estate will probably drop by almost two-thirds from last year to 2 billion pounds, Savills Plc estimates.

Prices for residential properties in the U.K. as a whole fell 0.5 percent in February from the previous month, the fourth decline in a row, Nationwide Building Society said last week. Property prices were 2.5 percent higher than a year earlier, the smallest annual increase since November 2005.

This year, top-quality dwellings in the U.K. capital will appreciate about 3 percent, Knight Frank said today, reiterating an October forecast.

Well-to-Do Investors

The most expensive address in Britain is Courtenay Avenue in the Highgate neighborhood of north London, where prices average 6.8 million pounds, according to an annual report published last month by the Mouseprice Web site.

Wealthy investors from outside the U.K. contributed to the increase in luxury-home prices. Ukrainian billionaire Viktor Pinchuk bought a ``prominent'' property in the city, according to a statement from his holding company yesterday. The price of the property, a five-story townhouse in Kensington, was a record 80 million pounds, the Evening Standard reported on Feb. 29.

In 2004, Indian steel entrepreneur Lakshmi Mittal paid 57 million pounds for a home close to Kensington Palace, the most spent on a house in the city.

Last month, Knight Frank confirmed it had sold half the 80 apartments under construction in the One Hyde Park development, a project managed by Candy & Candy Ltd. The average sale price was 20 million pounds, with top prices at 5,700 pounds a square foot.

A third of the buyers of apartments in the Knightsbridge development, designed by the firm of 2007 Pritzker Prize-winning architect Richard Rogers, were Russian. A quarter of purchases were by Middle East investors and a fifth by Britons, Knight Frank said.

Taxing Foreigners

A government plan to introduce a 30,000-pound annual levy on wealthy foreigners who have lived in Britain for more than seven years without paying tax has so far had ``no discernable impact on the activity of the super-rich in London,'' Bailey said.

That view is not shared by all realtors.

``It is the single most damaging thing that could happen to our business,'' said Trevor Abrahmsohn, managing director of Glentree International, who sold a house in The Bishops Avenue in north London for 50 million pounds, a record for a newly constructed house in the U.K.

``It is pivotal,'' Abrahmsohn said in an interview. ``It could be very damaging if these people moved to Geneva, Monte Carlo or somewhere similar.''

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net

Last Updated: March 4, 2008 10:45 EST