Is London’s housing market on the edge of freefall?

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Separately the impact of the chancellor’s decision to axe non-dom tax status on the luxury London market can be revealed in exclusive analysis by the prime estate agency Beauchamp Estates. It shows that £100 million has been wiped off the value of transactions in the £15 million-plus bracket in the space of a year — with £694 million spent in the first half of 2025 compared with £795 million in the first half of 2024. The research, using the official LonRes database of transactions, shows that 27 deals were completed, down from 46.

It comes as predictions for the national housing market appear increasingly bleak amid global economic uncertainty. Savills, the estate agent, had anticipated UK house prices would go up by 4 per cent on average in 2025. However, owing to a “weaker first half” of the year than anticipated, it has cut this to 1 per cent. A few days earlier, Rightmove, the property search website, trimmed its house price forecasts from 4 per cent down to 2 per cent. Analysts blamed global anxiety about Donald Trump’s tariff war, higher domestic taxes and too many properties on the market for the gloomier predictions.

“Many of the international buyers who used to drive the ultra-prime market, particularly from the Middle East and parts of Asia, have left London,” says Becky Fatemi, a partner at Sotheby’s International Realty.

With the market stalling, the government’s political opponents are circling, claiming that the trend illustrates the impact of high taxes on this market. The property tycoon Nick Candy, who is the treasurer of Reform UK, says crime is also putting off wealthy buyers and residents. “When people don’t feel safe in a city or face confusing and inconsistent tax policy, they stop investing in it,” he says.

The affordability crisis hitting the middle-classes

In other UK cities, however, markets are thriving. Analysis by the data company TwentyCi found that the number of sales agreed in the second quarter of this year has risen in every other big city, with Manchester up 15 per cent and both Cardiff and Edinburgh up 11 per cent. In inner London they have fallen by more than 4 per cent.

PropCast’s data reflects this picture. It shows that there are 1,678 “hot” UK postcodes, where at least 35 per cent of properties advertised for sale are under offer, a fall from the 2,156 in the Covid boom of 2022 but similar to 2019. There are 571 “cold” markets (where less than 35 per cent of properties are under offer), a substantial increase from 88 in 2022. Roll over the map below to see what’s happening in your area.

In London the number of hot postcodes has fallen from 84 in June 2022 to 63, while the cold markets have risen from 38 to 59. “Increasingly the capital is becoming decoupled from the rest of the UK housing market,” TwentyCi says.

Among the coldest areas on PropCast’s list are a number of trendy neighbourhoods and suburbs. This includes EC2 (Shoreditch and Hackney), where only 8 per cent of properties on the market are under offer, as well as NW4 (Hendon and Brent Cross), where there has been large-scale development but only 11 per cent of homes up for sale are attracting interest. In middle-class NW10, covering Kensal Rise, 28 per cent are under offer, and in N3 (Finchley) it’s 30 per cent.

Agents have become used to this sluggishness. “If I had a pound for each time I have heard the word ‘challenging’ used as a description of the market during the past six months, I would be dining like a king,” says Marc Schneiderman, a director of Arlington Residential, a northwest London agency.

The capital is sharply divided, however. In suburban areas, well-maintained family homes that are priced correctly — not doer-uppers, given high building costs — are still selling. And in the cheapest areas competition for homes is almost as frenzied as during the Covid era, with buyers, particularly first-timers, having fewer places to search for value. For example, in SE2, covering areas like Abbey Wood and Plumstead, 60 per cent of advertised homes are under offer, while in E18 (South Woodford) it’s 59 per cent. In E11 (Leytonstone) 56 per cent are under offer.

The cost of living is affecting the market, with cheaper properties faring better than more expensive ones, which has a bigger impact on London. Research by the property website Zoopla last month found that the markets in postcodes where the average house price is £500,000 or more have stalled badly.

This affordability crisis in the capital is exacerbated by a lack of supply. As The Times reported this month, researchers at the consultancy Molior visited 800 sites with planning permission in the capital and found that only seven had started construction in the past three months.

Also, opportunistic estate agents have been accused of making the problem worse in middle-class areas by encouraging sellers to set prices for their homes at Covid-era levels, which has led to increased supply in some estate agent windows, but little demand. “Many salespeople either do not understand what is happening, politically or economically, or they do not care,” says Charles Curran from the London estate agency Maskells.

There have been significant price falls in areas that are popular with families. Savills, using Office for National Statistics data for May, found that the average selling price in Hammersmith and Fulham has fallen 11.8 per cent since it peaked in March 2023, and is now at £784,876. In Tower Hamlets it has dropped by 16.3 per cent since its peak in January 2022, hitting £479,284, while in Barnet it has gone down by 8.5 per cent since peaking in October 2022, falling to £590,195.

Dominic Agace, the chief executive of the estate agent Winkworth, which has 60 branches in London, says that middle-class buyers are “readjusting their lives to address new living costs, such as VAT on school fees and higher interest rates reducing their budgets”.

The crisis of luxury London

Labour’s decision to end the non-dom tax regime is playing havoc in prime locations like Mayfair, Belgravia and Knightsbridge. The number of wealthy foreign buyers has reduced to a trickle and a growing number of residents are relocating to lower-tax domains like Dubai, some leaving their London homes unsold and empty. Demand for these properties has dwindled.

In the SW10 postcode, covering Chelsea, just 12 per cent of properties are under offer, according to PropCast. In NW8 (St John’s Wood) it’s 13 per cent and in SW7 (South Kensington and Knightsbridge) it’s 11 per cent.

The Beauchamp Estates analysis of luxury sales also makes for grim reading. The data shows that 70 per cent of the 27 sales recorded in the LonRes database in the £15 million-plus bracket have been made by non-doms fleeing overseas, to places such as Dubai, Milan, Monaco, Miami and the French Riviera.

• London’s luxury property market has dived — as Dubai soars

Many of these houses were bought by Emiratis enthusiastic for a base in the capital, but a source says these buyers are probably not planning to move to London permanently, so the houses will sit empty for much of the year. Others are being bought by Americans fleeing the Trump administration, sometimes getting a discount of as much as 40 per cent on the original asking price.

Last week The Sunday Times reported that the Norwegian shipping billionaire John Fredriksen, 81, is off to the UAE, vacating one of London’s most valuable homes, the Old Rectory in Chelsea, which is for sale for £250 million. Local residents say the mogul has already let more than a dozen domestic staff go, and arranged discreet viewings.

ONS data for May, analysed by Savills, shows a 14.6 per cent drop in sold prices in Kensington and Chelsea between the area’s post-Covid peak (September 2022) and today, and is now an average of £1.415 million. In the City of Westminster, prices have dipped 17.6 per cent since January 2023, down to £1.009 million. Meanwhile, prices in Islington have dropped 7.7 per cent to average £693,269 since peaking in May last year.

Lucian Cook, the director of residential research at Savills, says price drops are difficult to calculate in high-value areas because of low transactions. However, he adds: “Over the past two to three years we have seen the elastic between different parts of the London housing market stretched significantly. Prices at the top end have been sensitive to further changes in the tax environment for high-net-worth individuals. That has trickled down to the affluent middle, who have contended with higher mortgage rates and school fees. Meanwhile prices in the less expensive outer boroughs have proved more resilient, as buyers in the capital look to get more for their money.”

The analyst New World Wealth last week revealed that the UK lost a quarter of its dollar-billionaires (18) in 2023 and 2024, more than any other country. It is known that Asif Aziz, the billionaire property mogul, was one of the many wealthy people who relocated.

Curran from Maskells blames the government for squeezing families and the wealthy alike with its tax policies. “Politically and economically the UK is on a knife edge,” he says. Jeremy Gee from Beauchamp Estates says buyers and sellers are becoming more flexible on price in this market and is hopeful that it is bottoming out.

However Candy, whose own penthouse at One Hyde Park is for sale for an estimated £175 million with Sotheby’s, says — predictably — only a change of government and mayor will boost the confidence of the rich. “We need a new mayor and a new government that will back the police, restore public confidence, and provide a clear, coherent tax framework.”

The rise of super-prime rentals

A growing number of people in rich areas of London are choosing to rent — for pricey sums — which means they can avoid forking out millions in stamp duty and don’t have to put down roots.

The growth in London’s rental market has led to the emergence of a number of luxury developments in the heart of the city, including the Other House in South Kensington, which has hotel-style amenities and a private members’ club.

Its founder, Naomi Heaton, says tenants are prepared to pay £5,000 a month in rent in South Kensington and £6,400 in Covent Garden, which opens this summer. “For many wealthy people arriving here, buying is simply out of the question,” she says.

Yasmin Ulhaq, founder of the London-based property manager Glenfield, adds: “This shift has placed London’s super-prime rental market, defined as properties commanding upwards of £10,000 a week, firmly in the spotlight.”