A drop in luxury home prices across Europe saw the global market for prime property stall at the start of 2013, but London continues to race ahead with growth of 8% in high-end house values.

The average price of luxury homes in the world's key cities fell by 0.4% in the first quarter, with European destinations proving the least attractive to wealthy investors, data from property consultants Knight Frank suggests. The drop followed growth of 1.7% in the final quarter of 2012.

European cities took seven of the 10 worst slots in Knight Frank's quarterly index, which is based on the top 5% of the mainstream housing market in each place. They included Paris, Zurich, Madrid and Rome. London, however, managed an 8.1% annual luxury home price rise, placing it 12th in the list of 29 cities.

The Knight Frank report comes amid further evidence of a boom in the London housing market, where the average price of a central London flat has breached the £1m barrier. A separate report indicated the mismatch between supply and demand in London's wider property market has intensified, pushing some measures of activity back to where they were before the financial crisis.

Property analysts Hometrack said growth in London helped prices across England and Wales rise 0.3% in April. Demand in the capital grew three times faster than supply over the last quarter, helping cut the average time on the market for a property to almost half the national rate at 4.6 weeks – a level last seen in 2007. The proportion of the asking price achieved in London was also back to where it was in 2007. Outside London, demand rose across all regions for the third consecutive month, Hometrack said.

"Improved market sentiment and a lack of supply for sale are key features of the market, providing support to underlying pricing levels across the country," said Hometrack's research director Richard Donnell. "The news of a rise in economic growth over the first quarter along with government measures to support housing is likely to boost market sentiment further over the coming months."

A report by Halifax also confirmed London's impact on the national housing market. The price of new-build homes has fallen in the UK over the last five years in much of the country, but jumped sharply in London and the south east, according to an analysis by the bank.

The average price of a new build property is £233,822, but the figure masks huge regional variations. In the north, the average price has fallen by 10% since 2007 to £157,190, but in London it has jumped by 29% to £415,540 from £321,408 five years ago.

The increase in London prices, and to a lesser extent in the south east, contributed to an average gain in prices of 12% over the last five years, despite the fact that in six out of ten regions of the UK prices fell.

The capital's growing detachment from the rest of the country's property market was underlined by figures from estate agents Cluttons which said that the average price of a flat in central London has broken the £1m barrier.