London property prices have recorded their sharpest annual decline in almost two years, driven primarily by a significant fall in London flat prices and highlighting widening regional differences in the UK property market ahead of Chancellor Rachel Reeves’ Budget.
According to official data, London house prices fell by 2.4% in the year to October, bringing the average property price in the capital to £547,299. This contrasts with UK-wide house price growth of 1.7%, reinforcing London’s growing divergence from the rest of the UK housing market.
The downturn in the capital the largest since February 2024 was driven by a 5.1% annual drop in flat prices in London. Detached homes also declined, falling 1.4%, while terraced house prices remained broadly flat. Semi-detached properties were the only segment to record price growth, underlining a shift in buyer preference and affordability pressures within the capital.
Market sentiment in October was significantly affected by speculation around property tax changes, particularly concerns over a proposed “mansion tax” surcharge on properties valued above £2 million, the majority of which are located in London and the South East. The November Budget later confirmed the surcharge, alongside a 2 percentage point increase in property income tax rates.
Despite being one of the world’s most established real estate markets, London continues to underperform relative to other UK regions. Elevated mortgage rates, affordability constraints, and tax uncertainty have weighed heavily on demand. Forecasts suggest London property prices are likely to remain flat or edge lower through 2026.
Inflation fell to 3.2% in November, strengthening expectations that the Bank of England will cut interest rates from 4% to 3.75%.
Government data shows that in the year to October 2025, average UK property prices rose by around +1.7% overall. Within this:
- In England, average prices grew by about +1.4%.
- In Wales, prices rose by about +1.5%.
- In Scotland, prices increased by roughly +3.1% – 3.3%.
- In Northern Ireland, prices increased by around +7.1%.
Looking at English regions, the North East recorded the strongest annual growth (around +5%), while the South West was one of only two areas (alongside London) to record an annual price decline (about ‑1.3%).
Our view:
With Budget uncertainty now behind us and borrowing costs expected to ease, we anticipate a measured release of pent-up demand. Buyers who have remained on the sidelines are likely to re-enter the market over the coming months, particularly in regions where pricing, supply dynamics and long-term fundamentals present compelling entry points and capital positioning opportunities.
