Tower Hamlets House Prices Plunge as London's Property Boom Ends

London's decades-long property boom is officially over, according to new analysis from financial experts at Rathbones. The research reveals a stark reversal of fortunes for property in the capital, where annual price growth has stagnated and, in some cases, turned negative, falling far behind soaring inflation rates.

From 1995 to 2016, London's housing market was a global powerhouse, with average house prices surging by an astounding 9.1% annually. This "golden age" saw prices in areas like Hackney, Southwark, and Westminster climb by over 10% each year, far outstripping the national average and cementing property as a go-to investment.

However, the past eight years have painted a very different picture. Between 2016 and 2024, annual house price growth in prime central London boroughs like Wandsworth, Lambeth, Tower Hamlets, Kensington and Chelsea, and Westminster plummeted to less than 0.5%. In Southwark, average prices actually declined by 2% over the same period.

This stagnation comes against a backdrop of persistently high inflation, which reached 9.1% in 2022 and 7.3% in 2023, effectively eroding property values in real terms. Even in outer London, where prices have shown slightly more resilience, they have still failed to outpace inflation. Bexley, for example, saw the best growth in the capital but still only achieved an average annual increase of 2.8%—significantly slower than the pre-2016 boom.

The shift is attributed to a confluence of macroeconomic pressures and government policy. Decades of low interest rates have been replaced by a new era of global instability and high mortgage costs. For investors, the appeal has been further diminished by a series of tax changes, stamp duty surcharges, and stricter regulations, including the recently passed Renters' Rights Bill 2024-25.

According to Rathbones' Charlie Newsome, many buy-to-let properties, which were already operating on thin profit margins, have now become "unviable as businesses." This is driving a growing number of landlords to sell their portfolios, with some opting to use the proceeds for other financial goals, such as inheritance tax planning. This trend is expected to accelerate amid growing speculation that the upcoming Autumn Budget could introduce a new National Insurance tax on rental income, a move that could raise £2 billion and be the "final nail in the coffin" for property as a viable investment.

In contrast to the stagnant property market, a simple investment portfolio of equities has continued to provide inflation-beating returns, with UK and global stocks growing by an average of 7.2% annually between 2016 and 2024.

This marks a significant turning point for the UK housing market. Historically, house prices hovered at around four times average annual earnings, a ratio that more than doubled to eight times earnings after 2000, making homeownership increasingly unaffordable. With a more challenging investment landscape and slowing price growth, the era of London property as a guaranteed path to wealth appears to be over.