Uncertainty is set to plague London's beleaguered housing market again this year leading to short-term price falls, according to experts, and preventing a sustained recovery in sales activity.
Trump tariffs and the stock market mayhem, the threat of a global downturn as well as a UK recession, job market concerns and stretched mortgage affordability have dampened buyer demand in the first three months of 2025 with early signs that house prices could fall in the capital.
Over the first three months of the year buyer demand in London slid. In January the number of buyers enquiring about properties via Rightmove was up five per cent on the year before. By February this had tailed off with enquiries down four per cent compared to February 2024 and one per cent lower in March. This is despite the fact that the Bank of England base rate is lower than this time last year (5.25pc versus 4.50pc).
Enquiries via Rightmove
- January 2025: up five per cent versus January 2024
- February 2025: down four per cent versus February 2024
- March 2025: down one per cent versus March 2024
"London is the only area where we are seeing these demand trends," a Rightmove analyst says. "On average new buyer demand across the UK in the month of March was five per cent higher than last year, with many regions upwards of this," he says.
Knight Frank has also reported a four per cent fall in approaches from wannabe home buyers in Q1 in the capital versus the first three months of 2024.
"Buyer enquiries are turning down a little and, although the idea of a housing market crash is implausible (there would need to be a meaningful uplift in unemployment), if we saw a few months of modest price drops I would not be surprised," says Simon Rubinson, chief economist at RICS (Royal Institution of Chartered Surveyors).
New Halifax numbers show the negative trajectory for London: the capital had the slowest annual house price growth of any region from rises of 1.5 per cent over the 12 months to February to 1.1 per cent in the year to March.
New build buyers go missing
This drop in sentiment is being felt acutely in the new homes sector, as a developer tells Homes & Property. "We have experienced a really poor sales start to the year, and it has got worse in the last four weeks. January and February are usually strong selling months, but this year has been absolutely dire. We are finding this on most of our apartment schemes," she says — putting it down to concerns about tarrifs potential job cuts.
Bob Weston, boss of Weston Homes with schemes in Barking and Wood Green, agrees. "We are actually still receiving very similar numbers of enquiries and visitors to our sales offices as in previous years, but many of these potential buyers cannot buy or are nervous of doing so due to macro-economic factors impacting consumer confidence," he says.
"The nervousness is particularly apparent since the beginning of the year — our conversion rate of visitors coming to the site to reserving a new home has dropped dramatically. It is now taking three times more visitors to generate a sale than this time last year," Weston adds.
Stamp duty surge gave false hope
Reports at the start of the year showed a spike in sales activity as first-time buyers rushed to complete purchases before the stamp duty threshold fell on 1 April. This deadline was particular pertinent for first-time buyers in London. The threshold will move from £425,000 to £300,000, which means only eight percent of homes in the capital will be stamp duty free.
This rush has made London's housing market seem busier than it really was.
These completions are sales agreed last year and Rightmove believes the surge will account for a very high proportion of their anticipated sales this year — 575,000 legal completions of the of the 1.15m sales the portal predicts for 2025.
In reality, the drop off in demand that has been drowned out and this drop in transactions will flow through into the spring selling season. Mark Harris, chief executive of the broker SPF Private Clients, foresees a "subdued" year ahead.
Why Trump tariffs matter
There was already plenty to be uncertain about before Trump's Liberation Day. Last year lenders were anticipating four to five interest rate cuts in 2025, explains Harris, but now it could be just one or two. "Mortgage rates are on a knife edge. On one hand the Bank of England is concerned about inflation rates rising, on the other the economy isn't growing and we could see two quarters of negative growth (a technical recession). It is quite the dilemma and will mean wannabe buyers will continue to wait for rates to come down before committing," he adds.
There are also mounting concerns that the Chancellor may need to impose more taxes — potentially property taxes — in the autumn Budget as the country's borrowing costs increase.
This week Trump sent a missile of uncertainty across the Atlantic. "Buying in London is already a challenge. Let's face it, only a limited pool of people can get on the ladder. But the uncertainty created by the tariffs will make potential buyers even more cautious," says Rubinson. "Then, if there are stories of job losses, people will become cautious again. We don't even know if the tariffs will hit our service sector. There are so many unknowns," he adds.
The bigger picture
While any price falls are likely to be short term — there is still a huge imbalance in supply and demand in London which cushions any significant softening — the slide in consumer sentiment and therefore the drop in demand to buy a new home diminishes the ability of the housebuilding sector to ramp up delivery. This seriously undermines the Government's pledge to ensure councils and developers build 1.5 million new homes.
The end of any stamp duty relief for first-time buyers in London on homes over £300,000 with no other buying stimulus in the spring statement, as well as sticky interest rates and economic uncertainty, shrinks the market for developers.
So, does this mean price falls in the new build sector? It is very difficult for developers to lower prices to sell homes as they are linked to the cost of the entire project and the cost of the land, Marcus Dixon, head of residential research for JLL, explains. "I do expect to see far more incentives (essentially price cuts but keeping the sales price the same)," he says.
This is already evident with new incentives popping up on top of the offers already in place. Barratt Homes – on schemes such as Bermondsey Heights (a 26-storey development of 163 apartments) — has a new initiative that started in January called Starter Deposit Match. Barrat will offer a five per cent deposit to reduce the amount a first-time buyer needs to borrow.
Trump's tariffs certainly add to developer woes, potentially reducing Rachel Reeves' fiscal headroom and making it even more unlikely that national government can provide more funding for homes in London or stimulate buyer demand. Weston sums it up: "Builders can only build what they realistically expect to sell."
