Here in the United States, when a card is used, most hotels will indeed do a hold. I would suspect in London the same thing is done.
Most hotels will hold an additional amount (even though it is prepaid) up for incidentals (like room service, damages, anything you bill to your room).
My hotel does 150%. So lets say your total (prepaid) was 100.00 even. That means when you check in, you will need to have an available balance of $50.00. The actual formula needed depends on the hotel. My sister hotel does an extra 250.00 for the stay. (+ Room and Tax if its not already paid for).
My former hotel did 3%, so if you had 100 total stay, we would auth for 103.00 at check in (and if it was prepaid, we would auth for 3.00).
However, if the hotel at check-in determines your a high risk, they may up it. (or if your being an asshole to the clerk... I have herd of that before, but its rare).
Now, Debit Cards and Credit Cards work similar, but can have A HUGE EFFECT ON YOUR VACATION.
Although an authorization is not a charge, it will look as one on your online banking statement until the actual amount is posted. This means the auth will place a hold, and take it away from your available balance. Though technically the money never left the bank, and no charge was placed.
Credit card auths take away from the credit line. So if you are no where near your limit, and have no plans to bring in that high of a balance, it doesn't matter. However if you have a small limit, you could have no problems.
NEVER EVER USE A DEBIT CARD AT A HOTEL.