Key Points
- Official figures show property prices declined year-on-year in 18 of London’s 33 boroughs.
- London’s overall house prices dropped by 2.4% in October, contrasting with a 1.7% rise across the UK.
- Prime boroughs like Kensington and Chelsea, Westminster, and the City of London saw double-digit falls.
- Affordable boroughs such as Barking and Dagenham, Havering, and Lewisham continued to show growth.
- Experts blame stretched affordability, higher taxes, mortgage rule changes, and Brexit fallout.
- Chancellor Rachel Reeves’s Budget added a new surcharge on properties worth over £2 million.
- Non-domicile tax regime abolition in April further deterred high-end investors.
- Knight Frank’s Tom Bill described London as a “two-speed market”.
- Zoopla’s Richard Donnell said London has “gone nowhere” on prices since the Brexit referendum.
- Analysts warn that the prime central London market faces long-term challenges in global appeal and yield.
Which London boroughs saw the biggest house price declines?
As detailed by Hammond in the Financial Times (FT), some of the steepest declines were recorded in the city’s most expensive boroughs. The City of London witnessed an 18% fall in prices, Kensington and Chelsea’s values contracted by 16.5%, and Westminster saw a comparable double-digit drop.
These statistics reflect a broader slowdown concentrated in London’s prime property market. In contrast, more affordable boroughs continued to perform robustly: Barking and Dagenham, Bromley, and Lewisham experienced sustained year-on-year growth.
Havering, in particular, stood out with a 5.3% increase—the strongest uplift among all London boroughs.
Tom Bill, head of UK residential research at Knight Frank, told FT that London’s housing landscape had become a “two-speed market”, shaped by taxation and political uncertainty. As he explained,
“Prime areas are hit by higher stamp duties and remain more susceptible to political risk, whereas demand in affordable areas continues to be strong.”
What’s driving the downturn in prime central London property?
Luxury property values have failed to recover their pre-2016 momentum. According to experts cited by FT, London’s prime housing market has been “underperforming” since the Brexit referendum, amid shifting fiscal and political conditions.
This year’s policy changes have further strained the sector. In her November Budget, Chancellor Rachel Reeves introduced a new surcharge on properties valued above £2 million. The government also abolished the long-standing non-domicile (non-dom) tax regime in April, replacing it with a residence-based system — a move that, according to FT, deepened uncertainty among wealthy foreign investors.
The cumulative effect of these changes has been to erode buyer confidence at the top end of the market. “London’s perhaps lost some of its appeal on the international stage,” Bill told FT. He added that years of “political psychodrama” following the Brexit vote dented confidence and reduced the city’s once-global magnetism for property investment.
How is stamp duty affecting buyers in London?
Although the stamp duty land tax (SDLT) structure applies nationwide, FT noted that Londoners feel its effects much more sharply due to the city’s elevated property prices. Homes valued up to £125,000 are exempt, and rates of 2% apply up to £250,000—but given that average prices in London far exceed these thresholds, a significantly larger proportion of buyers end up paying substantial duties.
As Hammond reported, this has compounded affordability pressures across middle- and upper-market segments. Expensive boroughs face a “tax drag” that further weakens liquidity, while first-time buyers and those seeking modest homes have increasingly migrated towards the capital’s outskirts.
Where is demand strongest in the capital?
While the top of the London market falters, lower-priced boroughs continue to attract demand. Bill explained to FT that demand “tends to be strongest” in more affordable areas such as Havering, Waltham Forest, and Lewisham. Prices in these boroughs reached record highs this autumn.
Jonathan Hopper, chief executive of Garrington Property Finders, told FT that a “‘drag at the top’ has weighed down the London average,” but the “wider London market has performed better.”
This duality highlights a rebalancing across the capital: once-dominant luxury postcodes are losing pace to family-oriented suburbs and commuter zones benefiting from improved transport links and comparatively accessible prices.
What historical trends explain London’s market divide?
As emphasised by FT’s analysis, the post-financial crisis period initially saw London at the forefront of the national housing boom.
“Everyone wanted to be in London, investing in London,”
said Richard Donnell, executive director at property portal Zoopla, in remarks to the Financial Times.
However, Donnell added that since the mid-2010s — particularly following the 2016 Brexit referendum — London’s growth trajectory flatlined.
“After the post-financial crisis boom and since the Brexit vote, London house prices have gone nowhere,”
he said.
“The Brexit vote just had a boom-bust sea change moment for London as a place to do business, as a global city.”
How have average prices in prime areas evolved?
Based on ONS data cited by FT, Westminster’s average nominal house price has dropped to £890,000, returning to levels last seen in 2013. Kensington and Chelsea, the UK’s most expensive borough, saw its average home value fall to £1.19 million — its lowest level in over a decade, and a steep slide from its peak of £1.6 million.
Such figures underscore a dramatic reversal from the upward momentum that defined London’s post-crisis rebound a decade ago, when global capital inflows fuelled speculative demand for luxury property. The surging pound and rising interest rates since 2021 have added further headwinds, limiting overseas buying power and suppressing investment appetite.
Donnell described the new landscape as one where “the case for investing in London is the most challenging.” He noted that yields from London property are comparatively low, diminishing the attraction for both international and domestic investors. Nonetheless,
“property prices for typical British buyers in the capital, such as three-bed suburban houses, have been holding up a bit better,”
Donnell added.
Are affordability and mortgage rules part of the problem?
Analysts quoted by FT agreed that rising mortgage costs and tighter lending rules have disproportionately affected London, where property values are several multiples above national averages. The introduction of stricter affordability criteria since 2014 and successive interest rate hikes have reduced the pool of eligible buyers.
Mortgage regulation changes, combined with wage stagnation relative to house prices, mean that even mid-market buyers are increasingly priced out of central London, pushing demand towards outer boroughs and the commuter belt.
How do political factors continue to shape the market?
Political shifts remain a recurring theme in London’s housing narrative. According to Knight Frank’s Bill, “Prime areas are more susceptible to political risk,” reflecting investor caution amid volatility surrounding taxation policies, immigration rules, and economic forecasts.
After nearly a decade of geopolitical turbulence — from Brexit and pandemic-era uncertainty to successive fiscal policy changes — London’s reputation as a stable haven for property wealth has been weakened. The FT article concluded that while cheaper boroughs enjoy steady growth, “the capital’s luxury market remains constrained by both domestic and international caution.”
What are the broader implications for 2026?
Market analysts predict that London’s housing market will continue to fragment into distinct layers: affordable outer districts showing moderate gains, and prime central zones adjusting downward in price while offering poor returns.
With domestic demand constrained by interest rates and international appetite subdued by taxation and political uncertainty, experts expect London’s property landscape in 2026 to stabilise at lower levels rather than rebound strongly.
However, industry insiders told FT that selective investment opportunities remain — particularly in emerging residential zones benefiting from regeneration, improved transport links, and hybrid working patterns.
