Prime central London house prices recorded their first quarterly increase in four years in the three months to September, according to Knight Frank. Prices rose 0.3% during the period, although annual values remain 2% lower – the smallest yearly decline in 18 months.
Recovery signs despite market pressures
The improvement follows a difficult period for London's prime property market, which has been weighed down by mortgage rate volatility, tax changes and political uncertainty affecting buyer confidence and transaction volumes. Prices in prime outer London have proved more resilient, falling just 0.6% over the past year, with annual movements remaining within 1% since May 2025.
Sales activity has also improved, providing some encouragement for agents in the capital's higher-value markets. Knight Frank reports that exchanges across prime central and outer London fell 2.5% in the year to September, compared with a 14% annual decline recorded in March.
Super-prime market steadies
The market above £10m has steadied following a prolonged slowdown, with 121 transactions above £10m in the year to September, matching the previous 12 months. Total spending rose 14% to £2.4bn, though activity remains below 2024 levels. The abolition of non-dom status in April 2025 has added to pressures facing the super-prime market.
Liza-Jane Kelly, head of London sales at Knight Frank, said sellers were becoming more willing to adjust their expectations. “We are starting to see sellers become more realistic with their price,” she said. “Some have been on the market for several years and want to get on with their lives. They have accepted the more difficult mortgage landscape facing buyers and the fact that the political reality won’t change in the short-term.”
Average values in prime central London have fallen 22% since their August 2015 peak, and buyers are responding to the substantial price reductions. Kelly added: “Meanwhile buyers, some of whom have been renting, are sensing value after the price declines of the last decade. What this year has clearly shown is that underlying demand strengthens quickly when the negative news fades.”
Rental market tightens as landlord supply falls
While sales activity shows signs of recovery, letting agents face a different challenge as rental supply contracts and tenant demand remains strong. Average rents in prime outer London increased 3% in the year to September, rising 2.3% over the past six months alone – the fastest half-year increase since January 2024. New rental listings in prime outer London fell 6.4% in the year to August.
Knight Frank attributes some of the pressure to landlords adjusting their asking rents following the introduction of the Renters' Rights Act in May. Higher borrowing costs have added to financial pressure, with the average five-year fixed buy-to-let mortgage rate at 75% loan-to-value rising from 3.88% in January to 4.7% in August.
The imbalance between supply and demand is particularly pronounced in prime outer London, where Knight Frank recorded 8.9 new prospective tenants for every new rental property in the three months to September – exceeding the ratio seen when rental demand rebounded after the pandemic lockdowns. Prime central London has experienced a similar acceleration, with annual rental growth reaching 1.3% in September and rents rising 1.8% over the preceding six months, the fastest half-year increase since January 2024. The ratio of prospective tenants to new properties reached 5.6, its highest level in four years.
Budget uncertainty threatens further disruption
Knight Frank warns that the Budget on 28 October could influence both the sales and lettings markets during the final quarter. Landlords face speculation over potential capital gains tax increases and the introduction of National Insurance on rental income, while buyers and sellers await clarity on possible changes to property taxation.
For estate agents, the latest figures present a mixed picture. Sales volumes and prices are showing signs of stabilising, while letting agents face intensifying competition for available stock. Whether the improvement continues will depend partly on the government's next tax decisions and the direction of mortgage rates.
