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RESIDENTIAL RESEARCH - YEAR END 2025
MARKET OVERVIEW
PRICES FALL 8%
Commentators have always loved to ask the question: ‘have we reached the bottom of the market?’ Today, with prices across Central London at a 14-year low and rents at an all-time high (and looking likely to rise again next year), there is a strong case for arguing that the sales market has indeed reached its nadir - and that we should expect more people to make the move from rental to home-ownership in the year ahead.
The average price of a one bedroom apartment in our markets lost another 8% in 2025. The cumulative impact of successive falls since the market peaked, is that prices are 28% lower today, than they were in 2016.
A large number of rental properties that had flooded the sale market in early 2025 were withdrawn from the sales market in the final 3 months of the year. Many owners simply returned to the rental market, while others preferred to leave properties empty rather than accept the reality that prices had fallen over the past year. The net result, was that the oversupply eased and, with fewer homes available.
With investors, overseas and second home purchasers taxed out of the market, the City sales market is now dominated by first time buyers. Stamp duty remains punitive for investors, interest rates did not fall at the rate anticipated at the beginning of the year and The Renters Rights Act, which finally gained Royal Assent in October after many years of discussion and speculation, adds a layer of complexity and risk that deters new investors.
The announcement in the November Budget that landlords would be subjected to a tax surcharge on income earned from rental, only served to strengthen the case for selling up. The OBR, in its report published on the day of the Budget, acknowledged that this would ‘reduce returns to private landlords’ and would be likely to ‘reduce the supply of rental property over the longer run’.
LIMEHOUSE E14 - 2 BEDROOM FLAT, SOLD DECEMBER 2025, £675,000
However, selling up is not a given. We have explained in previous reports that flats need to be properly prepared and well presented to achieve a sale. That means having vacant possession for viewings and correct pricing. During 2025 we met too many owners who were not able to offer flats with vacant possession and were uninvested in the process. The results were predictable.
First Time Buyers are a different story. The pace of rental growth in the years after covid has caused many to question the economics of renting versus buying and their stamp duty advantage over investors, makes it easier to compete. For many, the price of an apartment in City or Midtown will be lower than at any time in their adult lives. For a Londoner aged 31, the average price of a one bed apartment in our markets is around 30% lower today than when they left school in 2012. Rents on the other hand, are around 30% higher.
We experienced a healthy boost to enquiries from First Time Buyers in 2025. The problem was that their interest frequently waned once they understood that owning an apartment comes with responsibility for a service charge on top of mortgage repayments and loan interest.
The Labour government, which came into power with a landslide victory, suffered a landslide in popularity in 2025 after a succession of embarrassing events, not least the resignation of deputy Prime Minister Angela Rayner in September for failing to pay the correct level of Stamp Duty on the purchase of her second home. With manifesto commitments looking increasingly unattainable and the Reform party gaining momentum, the Budget was set very late in the year on November 26th. No doubt the team at the Treasury appreciated the extra time to consider options, but for the housing market, the prolonged speculation about property taxes only added to the malaise and neither buyers nor sellers were keen to take action until matters were clarified.
In the end, leaving aside the additional landlord tax, there was little in the Budget directed at the housing market. The additional Council Tax surcharge imposed on homes valued at over £2 million from 2028 will impact only a very small minority of homes in our markets and an even smaller proportion across the whole of the UK.
The additional tax on rental income announced in the Budget, may well be the final straw for those landlords who were already feeling the weight of policy designed to discourage small investors. For those with short lets in their portfolio, the Tourist Tax, announced just before the Budget, might also have an impact on their commitment to rental investment. It imposes an additional cost for their customers and it remains to be seen where the burden of administering the tax will land.
Rents continued to grow in our markets in 2025 but at the much reduced rate of around 2% over the year, most of which was recorded in the first half year. Whether that relative calm will be sustained is another question. Demand for rental homes remains robust and, with so many factors encouraging disinvestment, it seems inevitable that more formerly-rented homes will be put up for sale, depleting the stock and thereby putting further upward pressure on rents in the years ahead.
As for sales, it does look as though the conditions have been set for more stability and confidence for both buyers and sellers in 2026.
