Central London boroughs have barely seen house prices rise since 2016, meaning they are losing value in real terms due to inflation, research from asset manager Rathbones has revealed.
Wandsworth, Lambeth, Tower Hamlets, Kensington and Chelsea, and Westminster all saw annual growth of less than 0.5%. Southwark experienced a 2% decline in average house prices over the same period.
Over the same period CPI inflation reached as high as 9.1% in 2022 and 7.3% in 2023.
Rebecca Williams, divisional lead of financial planning at Rathbones, said: “Once a haven for property investment, the London property boom is well and truly over. Our research shows that the key factors which once fuelled the meteoric rise in house prices no longer apply.
“We’ve also seen a growing number of clients with substantial property portfolios looking to disinvest, amid speculation that a new property tax – such as national insurance on rental income – could be introduced in the upcoming Budget. Such a measure could be the final nail in the coffin for London property as a viable investment.”
Even in outer London, where prices have risen more noticeably since 2016, they still failed to outpace inflation in every borough.
Bexley saw a reversal in fortunes, shifting from the worst to the best performing borough for house price growth. However, the average property value in Bexley still only rose by 2.8% per year – 5.2% slower than the growth seen between 1995 and 2016.
In contrast, equities have continued to deliver inflation-beating returns. A simple portfolio comprising 25% UK and 75% global stocks grew by an average of 7.2% annually between 2016 and 2024.
The golden age of property ownership in the capital spanned from 1995 to 2016, during which house prices rose by 9.1% annually – faster than any other UK region and well above the national average of 6.5%.
In some parts of London, house prices even achieved double-digit annual growth. In Hackney, Southwark, Lambeth, and Westminster, prices rose by more than 10% per year between 1995 and 2016.
Looking back over more than a century, Rathbones found that UK house prices typically hovered around four times average annual earnings between 1910 and the late 1990s. After 2000, this ratio more than doubled, with prices reaching up to eight times average earnings- making property significantly less affordable for the average buyer.
Decades of low interest rates have given way to global instability, fuelling inflation and driving up mortgage costs. Meanwhile, higher costs for landlords – stemming from tax changes, stamp duty surcharges, and stricter regulations such as the upcoming Renter’s Rights Bill – have further diminished the appeal of buy-to-let and second-home investments.
Charlie Newsome, divisional director at Rathbones, said: “Many buy-to-let and additional rental properties, where yields were already razor-thin, have now become unviable as businesses due to the twin pressures of rising interest rates and increasingly burdensome regulation – set against a backdrop of stagnating property prices.
“It’s no surprise that several of our clients have opted to sell their buy-to-let properties and use the proceeds in ways that better align with their long-term plans—including gifting assets for inheritance tax planning.”
