London house prices: Is the capital's property boom over?
Buyers and investors have always been drawn towards the capital’s property market. But as house prices stall, is the market as lucrative as it once was and are buyers and investors still interested?
The London property market has historically been attractive for many reasons, in particular for its potential for long-term growth and demand.
But house prices in the capital are stuttering, not least over the last 12 months, falling by 2% from £564,530 to £552,655 in the year to April 2026, according to HM Land Registry.
London’s housing market has struggled in recent years for a number of reasons, including higher mortgage rates and stamp duty costs squeezing affordability.
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Fears over the inflationary impact of the war in Iran and uncertainty over who could be the next Prime Minister have added fuel to the fire.
Could London’s fortunes change any time soon and will it continue to attract buyers and property investors?
Will London house prices rise in 2026?
If London’s house prices do rise, the growth will be nominal. Knight Frank’s latest house price forecasts for 2026 predict house price growth of just 1% in Greater London – well below the current rate of inflation.
The estate agent also expects prices in London’s most expensive postcodes to flatline or fall by up to 2% this year.
Meanwhile Savills predicts average UK house prices to fall by 2% in 2026, “with the most significant falls in London and the South East”, though it does expect property values in the capital to increase slightly by 1% in 2027 and then pick up to 3.5% in 2028.
Borough | Average house price |
Kensington and Chelsea | £1,272,760 |
City of Westminster | £814,679 |
Camden | £794,527 |
Richmond upon Thames | £794,027 |
Hammersmith and Fulham | £741,612 |
Wandsworth | £670,960 |
Islington | £665,067 |
City of London | £612,427 |
Haringey | £629,835 |
Credit: ONS, April 2026
How is the Iran conflict affecting the London market?
The war in the Middle East and its potentially inflationary impact has seen mortgage rates ratchet up in the UK since the end of February.
These higher costs have already fed into the market. Bank of England data suggests the number of UK mortgage approvals fell by 14.8% to 56,205 in May.
Tom Bill, head of residential research at Knight Frank, said the firm was seeing transactions stall, with demand typically growing between March and June but falling flat this year.
A 60-day ceasefire agreed between Iran and the US has seen mortgage rates drop in recent weeks. The average two-year fix is 5.5% as of 6 July, down from 5.64% on 8 June, according to financial data firm Moneyfacts.
Should mortgage rates continue to drop, this could stimulate growth in house prices across the capital. Bill cautioned, though, that lower rates could take “the next three to four months” to filter through to the market.
Bill added that the uncertainty around who could be the next Prime Minister was now the primary influence on sentiment across the market more broadly, including London.
“I think that’s probably going to be the biggest drag on activity over the next few months,” he said.
What does it all mean for buyers and renters?
For buyers, London still remains an expensive option, particularly for first-time buyers who face prices significantly higher than the UK average.
Rental costs have also surged in recent years, although by just 2% in the year to May 2026.
Renters may face higher costs as 2026 wears on and into 2027 though, as more landlords sell up due to regulatory changes and tax changes such as the Renters’ Rights Act and the hike to property income tax rates in April 2027, according to Knight Frank’s Bill.
Knight Frank has seen an uplift in people returning from the Middle East and looking for short-term rentals, which could push up rental prices in the capital.
Investors from the UAE are finding London an attractive location for investing in property
Is London property still worth investing in?
There is a mixed approach for investors. Some are selling due to costs and tax pressures, whereas others remain invested as London continues to show signs of resilience and rental demand.
According to Barratt Homes, there are 2.7 million private renters in London, providing opportunities for landlords.
London also remains the number one international city for wealthy Gulf investors, according to the latest Gulf Cooperation Council Investment Barometer from AlRayan Bank.
Its survey of 150 high net worth individuals from Saudi Arabia, Qatar and the UAE with a minimum £10 million in wealth, found 29% invested in London property in 12 months ending September 2025 ahead of New York (23%), Paris (23%), Los Angeles (22%) and Tokyo (21%).
James Mulvaney, head of digital at property finance brokers Clifton Private Finance, said despite the challenges facing landlords, there was also potential for growth for those applying the Buy, Refurbish, Refinance, Rent (BRRR) method.
In any case, despite its challenges, it looks like London will continue its resilient streak, attracting buyers, as well as investors both foreign and domestic as rental yields could deliver a return on investment, with the average rental yield in London ranging between 5% and 6%.
However, some landlords may take a more cautious approach with the changes laid out in the Renters’ Rights Act, including limiting advance rental payments to one month and giving tenants the right to request permission for a pet, which took effect from May this year.
