Wealthy London boroughs see house prices plummet amid Budget speculation
Inner London house prices plummeted at their fastest pace since the global financial crisis in November, after property taxes speculation in the lead up to the Autumn Budget and affordability constraints damaged market activity.
The 4.6 per cent year on year drop of house prices in the capital in November followed a 4.3 per cent tumble in October, marking the largest decline since the financial crash where prices declined at double-digit rates.
The largest falls were recorded in the poshest boroughs of the city, according to data published by the Office of National Statistics, but despite the drop London has maintained its standing as the most priciest region in the UK.
Prices in Kensington and Chelsea plunged 16.3 per cent to an average of £1.19m, while average prices in Westminster dropped by an annual rate of 15.5 per cent to £866,000.
In contrast prices in outer London continued to rise, with both Havering and Bromley reporting annual increases of 5.2 per cent and 6 per cent respectively.
The rising prices in the outer boroughs resulted in a 1.2 per cent fall in average house prices in London in the year November, bringing prices to roughly £553,000.
Autumn Budget and flying rumours
Speculation surrounding taxes on high end homes during the run up to Chancellor Rachel Reeves’ Autumn Budget led to subdued demand during November, with many consumers opting “a wait and see approach”.
Colleen Babcock, property expert at Rightmove, said: “November was an uncertain period for the market, as many home-movers had an eye on what the Budget might contain and how it might affect their personal situation.
Rumours around property tax and personal tax changes made some home-movers adopt a wait and see approach.”
Reeves introduced a new high-value council tax surcharge for owners of properties valued at over £2m in the Autumn Budget, which is set to take effect in April 2028.
Owners of properties above this threshold will be liable for a recurring annual charge, which will be added to existing council tax payments.
There will be four price bands, with the surcharge, which has been dubbed the ‘mansion tax’, rising from £2,500 for a property valued between £2m and £2.5m to £7,500 for a property valued above £5m.
The measure is estimated to raise £0.4bn in 2029-30, with the revenue flowing to central government rather than remaining with local government.
Other tax rumours including a shake up to the stamp duty regime and the introduction of capital gains tax on primary residences also caused a sense of panic in the run up to the Budget, but were ultimately left out of Reeves fiscal plans.
Jason Tabb, president of On The Market, also noted that “increased supply, low buyer demand and stretched affordability” coupled with higher living costs also weakened the London market.
London landlords ditch the market
Despite the fall in prices in the capital, Londoners were forced to continue dealing with the highest rental prices in the country, averaging £2,268 per cent compared to the North East, which paid just £762.
Analysts credited the sky rocketing London prices to more landlords opting to sell up, ultimately drying up the rental supply.
Nathan Emerson, chief executive of Propertymark, said: Although we have witnessed rental inflation trend further downwards, the rental market continues to suffer from a chronic undersupply of properties versus actual demand.
“We currently sit in a situation where many letting agents continue to highlight concerns regarding the impact of updated legislation and the real-world effect such changes are having on many landlords’ ability to operate.
“This, coupled with additional and often more complex tax frameworks, has brought profound change within the sector and applied additional pressure on already overstretched stock levels.”
Average prices and mortgage rates
In contrast to London’s fall, the average UK house price jumped 2.5 per cent to £271,000 in November, up from 1.9 per cent in October.
The rise marked the first price acceleration since June, with the North East recording the largest bump in prices at 6.8 per cent in the year to November, followed by the North West which saw a 4.1 per cent increase.
Analysts within the property sector expect the fall in mortgage rates to bolster the market further in 2026, but noted buyers need confidence from policy makers about the state of the market.
Paige Tao, economist at PwC UK, said: “With the Budget proving less disruptive than feared, and the Bank of England cutting interest rates in December, confidence is starting to return, and we expect activity to further rebound in the New Year.”
Tom Bill, head of UK residential research at Knight Frank, noted confidence “is the key missing ingredient” for some buyers in the face of both economic and political volatility.