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(Bloomberg) — House prices in London started 2026 with the steepest drop in nearly two years, official data showed, casting doubt on an expected recovery in the property market.
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Average London home values fell to £554,000 ($743,000) in January — about £9,500 lower than a year earlier, the Office for National Statistics said Wednesday. The 1.7% year-on-year decline was the sharpest since February 2024.
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The ONS figures are grounded in completed sales, unlike some private sector data that records asking prices. Before the outbreak of war in Iran on Feb. 28, property surveyors predicted that the London property market would finally turn a corner in 2026, while lenders said UK prices as a whole were rising. Now, however, rising interest rates and a cost-of-living squeeze threaten to dampen sentiment among buyers.
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London’s market appeared weak even prior to the Middle East conflict. Among all English regions, prices fell most sharply in the capital. England-wide average prices increased by 1.1%, a slowdown from a month earlier.
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“The housing market was already grappling with the twin-shocks of the stamp duty hike and more recent mansion tax, and buyers seem sensitive to uncertainty lately, so the starting point for housing activity heading into the crisis was relatively poor,” Elliott Jordan-Doak, senior UK economist at Pantheon, said.
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Mortgage rates have already risen sharply, with traders betting that the Bank of England will increase interest rates in light of turmoil in the energy markets.
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Paige Tao, economist at PwC UK, added that a weakening jobs picture and elevated values are also discouraging prospective buyers.
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London property has also lost some of its appeal after Covid, when families moved out of the capital in search for more space, enabled by the ability to work from home.
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Official figures showed that home values in central London areas such as Kensington and Chelsea and Westminster — where average prices are close to £1 million — dropped almost 11% on an annual basis.
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—With assistance from Andrew Atkinson.
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