London House Prices: A Tale of Two Cities
London’s housing market is currently exhibiting a stark divide, with prime central areas experiencing significant price drops while the suburbs maintain resilience – and even see growth. Recent data from the Office for National Statistics (ONS) reveals a concerning trend: inner London boroughs saw an average price decline of 4.6% in 2025, marking the largest annual fall since the financial crisis of 2008, when prices plummeted by 12.6%.
The Central London Slump
The most expensive areas of the capital are bearing the brunt of the downturn. Westminster, encompassing Knightsbridge, Mayfair, and Belgravia, witnessed a substantial 14.8% price decrease in 2025. Kensington and Chelsea followed closely with an 11.5% drop, and Hammersmith and Fulham experienced a 9.5% decline. These areas are particularly sensitive to factors like rising mortgage rates and changes in taxation.
The upcoming “high value council tax surcharge” – announced in the autumn budget and set to take effect from 2028 for homes exceeding £2 million – is contributing to uncertainty in the upper echelons of the market. The end of non-domiciled tax status last April prompted some wealthy residents to relocate, impacting demand in these prime locations.
Suburban Strength and Regional Disparities
In contrast to the central London slump, the suburbs are proving more robust. London house prices fell by 1% in 2025, but this masks the positive performance of outer boroughs. Bromley, in southeast London, saw a 6.8% price increase, while Havering, in east London, experienced a 5.4% rise. This divergence highlights a shift in buyer preferences towards more affordable and spacious areas.
This trend isn’t isolated to London. The ONS data shows a broader pattern across the UK. While London was the only region to see overall price falls, the north of England is experiencing growth, with the northeast seeing a 4.6% increase and the northwest a 4.5% rise. The southeast and southwest saw minimal growth, at 0.3% respectively.
Affordability and Market Resilience
Experts suggest that affordability remains a key driver of these regional disparities. Areas with lower housing costs are attracting buyers priced out of the more expensive southern regions. Despite the challenges of 2025, economists remain cautiously optimistic about the future.
Elliott Jordan-Doak, senior UK economist at Pantheon Economics, believes the housing market has demonstrated resilience in the face of economic headwinds. He forecasts a 3% average price increase in 2026, a prediction shared by other industry analysts. Recent data and surveys suggest “momentum is building” now that the budget is behind us.
Frequently Asked Questions
Q: Why are house prices falling in central London?
A: Rising mortgage rates, the planned “mansion tax,” and the changes to non-domiciled tax status are all contributing factors.
Q: Are house prices falling across the entire UK?
A: No, while London experienced a fall, many regions, particularly in the north of England, saw price increases.
Q: What is the outlook for the London housing market in 2026?
A: Economists predict a modest recovery, with average house prices expected to rise by around 3%.
Q: What does “non-dom” status signify?
A: It refers to the tax status of individuals who are domiciled outside the UK, allowing them certain tax advantages.
Pro Tip
If you’re considering buying in London, explore areas outside of the central boroughs. The suburbs offer more affordable options and are experiencing stronger price growth.
Explore further: The 2008 Recession 10 Years On – Office for National Statistics
