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London house prices fell for the sixth consecutive month and at the fastest pace in nearly two years, according to official data that points to a protracted period of weakness in the capital’s property market.
The average house price in London in the year to January dropped 1.7 per cent to £556,000, according to data published by the Office for National Statistics and the Land Registry on Wednesday.
In contrast, UK house prices rose by 1.3 per cent over the same period, to £268,000.
House prices in the capital have been contracting year-on-year since August 2025, a period in which house prices across the UK as a whole have risen. January’s figure also marked the steepest fall in London house prices since February 2024.
Tom Bill, head of UK residential research at Knight Frank, said: “London house prices continue to be the victim of their own success in recent decades, with the latest decline driven by an affordability squeeze that has prompted a growing number of buyers to find more bang for their buck outside the M25.”
He added that the trend was accelerated by the search for greater work-life balance following the pandemic, which has helped regional house prices play a slow game of catch-up with the capital.
The fall in house prices in the capital was driven by flats, which registered a 4.2 per cent annual contraction, and by inner London, which saw a 4.1 per cent fall.
The most expensive boroughs of the capital, such as Westminster and Kensington and Chelsea, continued to see double-digit rates of house price drops.
Richard Donnell, executive director at Zoopla, said the weakness in the capital in part reflected a rise in landlords and owners of second homes putting their homes up for sale due to changes in taxation and regulations, including the renters’ right bill and the rise in council tax for second homes in many councils.
The economic weakness in the capital goes beyond house prices, according to the latest official data. At 7.6 per cent for the three months to December, the London unemployment rate was the highest of any region and well above the national average of 5.2 per cent in the last three months of 2025.
London also registered the weakest rental price growth at 1.7 per cent in the year to February of any region. It was well below the 3.5 per cent annual UK rental growth in February, which was unchanged from January, but down from a peak of 9 per cent registered in December 2024.
Andrew Wishart, economist at Berenberg, blames a deceleration in pay growth for higher earners for the underperforming housing market in the capital.
“While the median wage has been supported by the minimum wage compressing the bottom half of the pay distribution, a growing margin of slack in the labour market has caused pay growth for high earners to decelerate sharply. This is a particular issue for London,” he explained.
“Looking ahead, higher mortgage rates will squeeze buyers’ budgets,” added Wishart.
The surge in energy prices following the war in the Middle East prompted economists to predict higher inflation and investors to reassess the path for interest rates, adding pressure on mortgage rates and the property market.
On Wednesday, the average two-year fixed mortgage rate rose to 5.56 per cent, up from 4.83 per cent at the start of March and the highest since September 2024, according to Moneyfacts.
Karen Noye, mortgage expert at the wealth management company Quilter, said: “The sharper reality will only begin to show up in the data once the next releases capture the immediate impact of higher borrowing costs, weaker sentiment and tighter household budgets.”