Why the London property boom is well and truly over
To the untrained eye there is little remarkable about Elfindale Road in south London.
The leafy street in Herne Hill looks like a thousand others across the city, lined with modest redbrick Victorian terraced houses. But behind many doors here lies a fortune – average house prices are more than £1m.
Thanks to explosive house price growth, those who bought these homes decades ago in this once down-at-heel part of the capital are now sitting on wealth that dwarfs what they initially paid.
One house on Elfindale Road, bought for £176,000 in the mid-1990s, earned its former owners £595,000 when it was sold in 2006, according to the Land Registry. By 2020 the same five-bedroom house went for over £1.6m, a more than 800pc increase in a quarter of a century.
This suburban postcode, SE24, includes dozens of addresses where property prices have soared by hundreds of thousands of pounds during the same period.
One house on Elfindale Road, bought for £176,000 in the mid-1990s, sold for more than £1.6m in 2020 – Julian Simmonds for The Telegraph
Conventional wisdom has long held that the value of bricks and mortar in London is almost certain to rise exponentially. For years, families in the capital relied on it to climb the property ladder and get ahead.
This is now a distant memory. Last year the capital registered zero increase overall in house prices, which have been sliding for the past three years.
House prices were £686,039 on average last year across the capital, 5pc lower than in 2022. In some pockets of the city prices are falling dramatically.
In SE24, where prices rose 196pc between 2009 and 2024 – among the highest of any postcode area in London – prices crumbled 8pc on average last year, according to analysis by property website Rightmove.
The prices of terraced houses in particular have taken a big hit. In 2022 they were selling for just over £1.2m, but last year values were 16pc lower, at £1.066m on average.
The heyday of house price growth in London has come to an end, thanks to soaring interest rates, a growing tax burden, and because property has simply become unaffordable. Buyers in the capital can now no longer assume their home is a golden ticket – and will sell for vastly more than they paid.
‘Houses would sell themselves’
When the global financial crisis struck in 2008, house prices in major cities like London tumbled. By 2009 they had crashed approximately 20pc, as buyer confidence evaporated. Many homeowners were plunged into negative equity, meaning their properties were worth less than they borrowed.
But then prices recovered much faster than the rest of the country off the back of the city’s burgeoning economy. Almost a third of new jobs created in the UK in the decade after 2009 were in London, according to research published last year by the University of Cambridge.
The growth in prices was fuelled by the Bank of England cutting interest rates to rock-bottom levels, while foreign buyers were enticed to London by a weak pound.
Between 2009 and 2014 the city entered a period of unbridled growth when house prices went up by almost 8pc on average every year. “Houses would sell without them even being seen,” recalls Simon Gammon, of Knight Frank Finance. Buyer confidence came rushing back. “House prices were rising so quickly, people were confident they were going to go up, and mortgages were so affordable… People were stretching themselves to take advantage of those huge gains.”
“There were several decades where it was a divine right that you would see 5pc to 10pc capital growth every year on your home,” says Mark Pollack, who has led London-based estate agency Aston Chase for 40 years.
Transaction costs were low and people traded up and up. For many families moving up the property ladder during this time, a return on their investment was all but guaranteed. “You could almost sit in [a house] and it would earn more than you could,” adds Gammon. Between 2009 and 2010 alone, properties in London rose in value by 12pc, equal to an average increase of £44,684 – more than the median salary in the city at the time of £29,260 a year, according to the Office for National Statistics (ONS).
‘Like buying gold’
Today the picture could not be more different. The market is so sluggish that if you buy a house now there is little guarantee it will sell for much more in the next few years.
Experts argue the golden age ended more than a decade ago, in 2014. This turning point coincided with George Osborne’s time as chancellor, when he abolished the so-called “slab” stamp duty system, replacing it with one that was kinder to buyers on medium-sized budgets – while punitive for those with millions of pounds to spend. Those buying an average family home at £275,000 would save £4,500, but a £2.1m purchase would carry £18,750 more stamp duty.
The move was branded a “tax on London” by property experts at the time, and had the effect of curtailing demand for the most valuable properties, predominantly in the capital. Land Registry data showed that by 2016 there had been a 40pc drop in the sales of homes worth more than £1m.
Fears that Brexit would lead to a crash in house prices also compounded this loss of confidence at the top end of London’s market and reduced demand from international buyers. This uncertainty trickled down to the rest of the property market.
Prices dropped in the most expensive areas of the city, falling in Westminster and Kensington and Chelsea by 5pc and 4pc respectively between 2016 and 2023, according to analysis of Land Registry data by online estate agents Yopa.
The loss of interest in London from the wealthiest buyers had played a key role in the decline of the city’s property market, says Richard Donnell, of property website Zoopla. “Buying London property used to be like buying gold,” he adds. “But since 2016 we have had a lot of tax changes: on domestic investors, plus increased stamp duty and on overseas buyers of property, who used to be able to take capital gains tax free. But that was all got rid of.”
This fed into all parts of London’s property market, he says. “What drives London’s housing market is its economy and how many businesses are coming in. [This is hampered without a] continued flow of high net worth investors and people coming here to set up [and hire] staff.”
Average buyers in London were also hit by tighter regulations on lending introduced in 2015, years after the financial crisis. New affordability stress testing was brought in to ensure those taking out mortgages could afford rates climbing to around 8pc, while the amount you could borrow from some banks was reduced from five times to 4.5 times earnings. House price growth slowed most dramatically between 2014 and 2015, according to Knight Frank, coinciding with these changes.
The new normal
The days of high growth in London are now over. House prices soared to such a degree, fuelled by low interest rates, that people can now no longer afford to pay ever-higher prices. Between January 2004 and December 2024 values in London rose 135pc, according to Land Registry data.
Now, they are more or less stagnant, adds Donnell, and will continue to be for some time. Prices slumped 3pc in the last four months of last year. The end of ultra-low interest rates put a stop to the wild borrowing that fuelled the rise.
There are other factors at play, too, which have slowed the market to a crawl. “The whole mentality towards buying a home is beginning to change,” adds Pollack. “Because of changes to stamp duty people are not moving anywhere near as frivolously as they used to and the volume of activity has reduced.”
Lucian Cook, of Savills, says that London has become “increasingly dislocated” from the rest of the country in the last two decades, as prices overheated. Now, that relationship has switched over: properties in the capital registered no growth last year, according to the ONS, while across Britain prices rose by 4.6pc.
Experts believe that this is part of a cycle that all housing markets go though. Cook says the decades-long boom in London “left prices much higher compared to the rest of the country than we had seen in any previous housing market cycle”. After rising exponentially, prices should now stagnate or fall.
“Prices have risen over the bulk of the capital in the past five years, but that growth has been muted,” he adds. “The average sale price in 2024 was below that of 2019 in just under one quarter of London postcodes.
“Despite this, London prices are still relatively high compared to the rest of the country when you look at them over a 40-year horizon, with the median house price over £500,000 in around 60pc of postcodes.”
In the future house prices in London are unlikely to climb astronomically again – or drop suddenly – with the city potentially doomed to a years-long slow decline in prices. “London [will] continue to underperform the UK over the next five years,” says Cook. “Though with interest rates set to ease that is likely to be by way of lower house price growth than price falls.”
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