The London property market in the first quarter of 2026 has presented a study in divergence: prime central London — the Mayfair, Knightsbridge, Chelsea and Kensington postcodes that have historically been the benchmark for the capital’s housing wealth — is experiencing its most prolonged period of price stagnation in a generation, while outer London boroughs and the commuter belt are showing genuine price momentum driven by improving mortgage affordability and resurgent first-time buyer demand.
Prime Central London: The Oligarch Effect Fades
Prime central London property has historically been supported by a combination of domestic high-net-worth buyers and international capital — particularly from Russia, the Middle East, China and South-East Asia. The sanctions imposed on Russian oligarchs following the 2022 invasion of Ukraine permanently removed one of the most active buyer segments from the market. While Middle Eastern and Asian capital has partially backfilled this gap, the flow has been inconsistent and increasingly directed towards newer markets including Dubai, Singapore and Miami that offer comparable luxury amenities with more favourable tax treatment.
The prospect of a mansion tax — which the Labour government has repeatedly declined to rule out — hangs over the top end of the market. Properties valued above £2 million are experiencing particular difficulty, with agents reporting that some buyers are explicitly deferring decisions until the government’s position on property taxation becomes clearer. Knight Frank data shows that transactions in the £2-5 million bracket fell 18% year-on-year in the first quarter.
The stamp duty surcharge on additional properties, which was raised to 5% in the October 2024 Budget, continues to suppress buy-to-let investment in prime areas. Several large-scale landlords have reduced their London residential portfolios, contributing to a rise in available rental stock that has, paradoxically, stabilised rents in some prime areas after years of extraordinary increases.
Outer London: A Different Story
Beyond prime central London, the picture is markedly more positive. Boroughs such as Barking and Dagenham, Havering, Croydon and Bexley — which bore the brunt of the 2022-23 rate shock — are now benefiting disproportionately from the improvement in mortgage affordability. Halifax data shows average house prices in outer East London rising 4.2% year-on-year in the first quarter.
The driver is unambiguous: improving mortgage affordability. With two-year fixed rates now available below 4% for buyers with 10% deposits, the monthly cost of a typical first-time buyer mortgage has fallen by approximately £200 from the peak of late 2023. This improvement, combined with Help to Buy successor schemes and the gradual recovery of real wages, is bringing buyers back into the market who had been priced out during the rate shock period.
Rental Market: Supply Improving
London’s rental market, which experienced extraordinary price increases between 2021 and 2024 as supply collapsed and demand surged, is showing early signs of rebalancing. Average advertised rents in London fell 1.2% in March — the third consecutive monthly decline. For renters, the improvement is real but modest: London rents remain approximately 40% above their 2019 levels. The government’s new planning reforms are expected to increase housebuilding nationally, but their impact on London specifically will take several years to materialise at scale.
— Edward Blackwell, London Capital Post
