The prime London property market is having a better summer than it did in 2025, but that’s not a particularly high bar.
The number of transactions was 14% higher across the capital in the three months to July, while the rise was 3% in prime central London (PCL), Knight Frank data shows.
Activity was subdued last year after the introduction of Donald Trump’s trade tariffs, the ending of non dom status and speculation around property taxation in the autumn Budget.
This year the backdrop has been quieter. New rates of high-value council tax announced in November look like the thin end of the wedge for a government with limited capacity to fund its spending plans, but they weren’t as bad as feared.
BUDGET SPECULATION
It enabled buyers to make plans after the Christmas break and by March the number of offers made in prime central and prime outer London was 8% higher than last year, which has translated into more activity this summer.
There is still speculation ahead of October’s Budget, but it has been more muted this year, particularly after new Prime Minister Andy Burnham ruled out a land value tax. The CEO of the CBI became the latest person to warn about the damaging effects of speculation last month.
Buyers and sellers have also become hardened to the volatility to some extent, as I discussed on a recent episode of Housing Unpacked with Alex Webster, the head of lending at Coutts.
SAME FIANCIAL CHALLENGES
Burnham replaced Keir Starmer as Prime Minister last month but faces the same financial challenges as his predecessor, as I explored on the latest episode of Housing Unpacked with market analyst Michael Brown.
The new government is still caught between a bond market that won’t permit a spending spree, Labour backbenchers who won’t sanction meaningful spending cuts, and a Labour manifesto that has ruled out income tax, VAT or national insurance rises.
Compared to the same period two years ago, when the country was contemplating the relatively blank canvas of a new Labour government, the picture is not quite so positive. Exchanges are 7% lower in both London and PCL over the last three months.
And compared to the five-year average, exchanges are down 6% in London and 15% in PCL. However, that comparison is distorted by a series of stamp duty cliff edges during and after the pandemic as well as the sharp re-pricing of mortgage rates that began in 2022.
It means accurately gauging the current strength of the market is not totally straightforward, though the absence of bad news means demand is gradually strengthening.
Underpinning that is the fact average prices in PCL have fallen by 23% since their last peak in mid-2015 due to a succession of tax increases and political uncertainty.
Average prices in PCL fell 3.3% in the year to July, which marked the 39th consecutive month of annual declines. Prices rose modestly over the two years to April 2023, but that followed a 59-month period of declines that ran from June 2016. Prices have been steadier in POL, as the chart shows.
REFURBS ON RADAR
As well as becoming tentatively more confident, buyers are also adjusting their priorities, says Stuart Bailey, Head of Prime Central London Sales at Knight Frank.
“Exceptional properties are in short supply which means buyers who were previously unwilling to consider refurbishment projects are doing so to ensure they get what they want,” he says.
“Many buyers at the top end of the market can spend one or two years looking for their ideal home, so even if doesn’t exist right now, the opportunity to create it does.”
The development pipeline in PCL had contracted by 70% over ten years, a recent Knight Frank report found.
As well as a tougher planning environment and higher build costs, viability pressures for developers have arisen from the price declines over the last decade.
It’s more evidence that when a government makes tax changes, the repercussions can be felt in unexpected ways for many years.
PRIME LONDON RENTS RISE AS LANDLORDS ADJUST TO NEW LEGISLATION
The Renter’s Right Act is still proving largely counterproductive.
The law, which came into effect in May, introduced a series of safeguards for tenants but rents have been pushed higher.
One reason is a shortage of supply as more landlords have sold due to the prospect of tighter margins and increased red tape.
The number of new rental listings in prime central and prime outer London was 14% below the five-year average in the first six months of this year, Rightmove data shows.
The Act sets stricter rules around collecting and increasing rent, reforms the possession process and introduces safeguards to prevent properties being re-let after they have been recovered for sale.
The prospect of Minimum Energy Efficiency Standards, which mean rental properties will require an EPC C rating from 2030, has been another deterrent.
ASKING RENTS RISE
With landlords prevented from accepting offers above the asking rent, advertised rents are rising.
“Without competitive bidding, some landlords are taking a more confident approach to pricing,” says Mel Constantinou, Head of Lettings in south-west London and the Home Counties at Knight Frank.
“Whether tenants are prepared to meet higher asking rents depends on how tight supply is in the local area. As the market adjusts to the new rules, setting the right asking rent from the outset will become increasingly important.”
Average rents in prime outer London (POL) rose 3.2% in the year to July, Knight Frank data shows. That followed an increase of 1.2% over the previous three months.
The last annual decline was recorded five years ago during the pandemic and rents in POL are 36% higher than they were before Covid.
Another example of how the new legislation is making life harder for both tenants and landlords happens in locations popular with international students like King’s Cross.
“International students used to be able to pay a year’s rent upfront,” says Jon Reynolds, Head of Lettings in the North, City and East London region at Knight Frank. “Landlords liked it because of the security it gave them,” he says.
MODEST UPWARDS PRESSURE
Supply is also tight in sub-£1,000/week markets in prime central London, which should keep modest upwards pressure on rents this year, said David Mumby, head of prime central London lettings at Knight Frank.
Average rents in PCL increased by 1.1% in the year to July, Knight Frank data shows. It means rents in PCL have also been increasing on an annual basis for five years and are currently 37% higher than before the pandemic.
The results of government intervention are also being felt at the higher end of the lettings market in PCL, where supply has been boosted by owners unprepared to sell while a less favourable tax landscape puts downwards pressure on prices.
New rental listings above £1,000 per week in London were 19% higher than the five-year average in the first half of this year, Rightmove data shows.
While average rents in PCL below £1,500 per week rose by 1.9% in the year to July, they were flat above that level.
