London’s property market is witnessing a nuanced shift, with varying dynamics across its districts, influenced significantly by recent tax policies, borrowing costs, and buyer sentiment.

In broader London, buyer demand remains relatively resilient, particularly outside the ultra-prime segments. Matt Thompson, head of sales at Chestertons, an established London estate agent, noted that buyer interest has been stable or even increasing in several parts of the city, contributing to steady or rising property values in these areas. This contrasts with prime central London, where a slight price adjustment has emerged, creating opportunities for domestic buyers to enter sought-after locations within their budget.

This observation aligns with data showing that while the prime London market (£2 million to £10 million) experienced a modest decline in demand during the first quarter of 2025, it was not uniform across all neighbourhoods. For instance, Richmond demonstrated robust demand, with nearly 39% of prime homes sold, while Chiswick saw an increase in buyer interest. In the super-prime segment (£10 million+), demand remained subdued overall but saw notable pockets of increased buyer activity in areas such as Wimbledon, Victoria, and Chelsea. These subtle fluctuations indicate that while the broader trend is one of caution, certain prestigious areas still attract keen buyers.

The decreasing international appetite for London’s luxury housing, especially among high-net-worth non-domestic residents, has played a significant role in this market recalibration. Recent tax changes, including limits on tax relief for overseas income and the imposition of inheritance tax on global assets, have led to a withdrawal of many wealthy international buyers. This has notably reduced competition for properties priced above £5 million, particularly in traditionally exclusive areas like Belgravia, Kensington, and Knightsbridge. Domestic families, often priced out in past years, are now capitalising on these price reductions, securing prime properties at values sometimes well below previous benchmarks.

Supporting this, industry data highlights a 7% fall in prime property sales and a 13% drop in new buyer registrations over the past year. Sellers have responded by trimming asking prices to attract buyers, with some properties seeing double-digit price cuts after months on the market. This scenario mirrors market conditions reminiscent of the post-2008 financial crisis period, where buyers hold greater negotiating power.

High borrowing costs, exacerbated by global economic trends and inflationary pressures, have further tempered market enthusiasm. The new Labour government’s removal of tax advantages for non-domiciled residents has also shrunk the potential pool of super-prime buyers, prompting many sellers to reduce prices to achieve sales amid rising supply, including a substantial number of unsold new homes in central London.

Nevertheless, optimism persists in other parts of London’s residential property market. Data from Chestertons reveals a 21% increase in buyers submitting offers and a 17% rise in properties coming to the market, partially fuelled by falling mortgage rates and stabilised interest rates. This has encouraged a broader range of buyers to re-enter the market, including first-time purchasers, young couples, and those seeking city pied-à-terres to avoid lengthy commutes.

Interestingly, prime central London, which suffered from price declines throughout 2024, saw its first annual price increase in February 2025, according to LonRes data. Although modest and still below pre-pandemic averages, this rise signals the potential stabilisation of values in some of the capital’s most prestigious neighbourhoods.

However, the picture in prime central zones remains complex. Knight Frank reports that average prices in prime central London fell by 2.2% over the year to May 2025, marking the steepest annual decline since August 2024. This drop has been driven in part by a stamp duty increase in April, raising the surcharge on second homes from 3% to 5%, which has further dampened demand. Despite this, some motivated sellers are lowering asking prices to capture the attention of buyers who remain cautiously optimistic, evidenced by pockets of strong buyer interest.

In summary, London’s property market is in a phase of adjustment, balancing subdued luxury demand caused by tax and economic headwinds with growing buyer confidence and activity in less expensive, more accessible parts of the city. The evolving landscape presents opportunities for domestic buyers to enter markets once dominated by international investment, while sellers in prime locations adapt pricing strategies to attract a more cautious, yet present, buyer base.

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Source: Noah Wire Services