"Buyers will generally jump on a property if it’s priced correctly. We are currently not far from last year’s position, which was a record 12 months for us"
- Luke Ellwood - Knight Frank
The London property market is more split than it has been since Brexit.
Average prices fell 3% in prime central London (PCL) in the year to July due to doubts around the government’s treatment of wealthy foreign investors.
Meanwhile, there was an increase of 0.6% in prime outer London (POL), in a market largely driven by domestic buyers moving due to changes in their personal circumstances.
The last time the gap was wider was in 2017, when prices in central London were correcting after the EU vote in June 2016. Demand was kept in check by an inconclusive general election a year later, and the spectre of a no-deal Brexit created a subdued mood in 2018 and 2019, as the chart shows.
Fast forward to 2025 and a similar gap is opening up. We face a summer of speculation as the government comes under pressure to tweak the rules that have replaced the non-dom regime.
Under the old system, non-doms could live in this country without paying UK tax on their overseas wealth. The new rules impose a residence-based framework with a four-year time limit and a proposal to charge inheritance tax (IHT) on global assets.
The changes have had real-world consequences, with wealthy foreign investors departing and adding to the pressure on government finances, as we recently flagged.
Underlining how the London property market has been affected, the average number of exchanges in south-west London in the first seven months of this year was 1% below the five-year average. In prime central London, the equivalent decline was 10%.
“Buyers will generally jump on a property if it’s priced correctly,” said Luke Ellwood, head of south-west London sales at Knight Frank. “We are currently not far from last year’s position, which was a record 12 months for us.”
Overall, it was a bumpy start to the year thanks to a stamp duty cliff edge in April, which saw activity pulled forward into the first quarter. However, last week’s dip in swap rates following weak US jobs data would have further supported the sort of domestic demand that drives the market in POL.
That said, more buyers in PCL are attracted by the relative value on offer, according to Stuart Bailey, head of prime central London sales at Knight Frank.
Average prices are 20% below their last peak in August 2015, which compares to an equivalent decline in POL of 7% since mid-2016.
“Some buyers have now been to places like Italy and Dubai and realise they still want a long-term base in London”, said Stuart. “When they see prices in Belgravia within 10% to 15% of areas like Fulham, it is tempting some of them to look in more central areas.”
It is still a buyer’s market across most of the capital due to high levels of supply. An overhang from the stamp duty cliff edge, decisions put off due to last year’s general election, and a growing number of landlords selling up are among the causes.
However, the picture is slowly improving as the distortive effect of April’s stamp duty increase passes through the system.
There were 6.7 new buyers for every new sales instruction in July in PCL and POL, which was lower than the figure of 7 last July, but it’s an improvement on 5.1 in April.
However, we would expect the price growth gap between PCL and POL to widen for now.
