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Property prices in London have fallen at the fastest pace in nearly two years, as a steep decline in the cost of flats helped widen the gap between the UK capital and the rest of the country in the run-up to Rachel Reeves’ Budget.
The 2.4 per cent drop in the year to October took the cost of the average London dwelling to £547,299, according to official data published on Wednesday. It contrasted with growth of 1.7 per cent in UK property prices.
The fall in London prices — the largest since February 2024 — was driven by a 5.1 per cent drop in the price of flats, with detached houses registering a 1.4 per cent contraction. While prices of terraced houses broadly stagnated, those of semi-detached houses rose.
In her November Budget, the chancellor set out a “mansion tax” surcharge on properties worth more than £2mn, most of which are in London and the South East, as well as a 2 percentage point increase in rates of property income tax.
But speculation that Reeves was planning a tax raid on the owners of expensive homes in order to fill a multibillion-pound fiscal hole was rampant in October, affecting the property market.
Paige Tao, economist at advisory firm PwC UK, said London continued to lag behind the rest of the UK “as elevated mortgage rates and speculation around a new ‘mansion tax’ weighed on demand”.
Prices in London would “remain flat or edge down through 2026, leaving the capital out of step with other major global cities”, she added.
Despite the fall in October, London remains by far the most expensive property market in the country and the least affordable, with the end of the temporary stamp duty holiday in April adding to prices.
Jason Tebb, president of property portal OnTheMarket, attributed the fall in London prices to “increased supply, low buyer demand and stretched affordability” as elevated mortgage costs and the cost of living further constrained prospective buyers.
Experts said they expected the property market to benefit from clarity on government policy after the Budget, as well as lower interest rates.
Inflation fell more than expected to 3.2 per cent in November, according to separate official data on Wednesday, cementing investor expectations that the Bank of England will cut interest rates from 4 per cent to 3.75 per cent on Thursday.
Tomer Aboody, director of specialist lender MT Finance, said: “With the Budget now over and done with, the uncertainty and hesitancy is also over and buyers are ready to make their move.”
The data from the Office for National Statistics showed that average property prices rose by an annual rate of 1.4 per cent to £292,000 in England, by 1.5 per cent to £211,000 in Wales and by 3.3 per cent to £192,000 in Scotland in October.
In the three months to September, property prices jumped 7.1 per cent to £193,000 in Northern Ireland.
Across England, the South West was the only region bar London, where house prices fell, down 1.3 per cent. Prices rose 5 per cent in the North East.
Darrell Walker, group sales director at digital lender Chetwood Bank, said an end to Budget uncertainty and the prospect of lower borrowing costs could trigger “a release of pent-up demand over the coming months as buyers who’ve been waiting on the sidelines start to re-enter the market”.