London house prices slump to lowest level in five years

London house prices have slumped to their lowest level since 2021 as higher taxes bite.Prices fell by 2.1pc in the capital in the 12 months to March, according to Office for National Statistics (ONS) data.This marked the eighth month in a row in which year-on-year prices decreased in London, with prices having fallen by £2,000 since February.The average sale price of £542,000 was the lowest recorded since October 2021, and has dropped by £12,000 since March 2025.The figures revealed a continued softening of London’s property market, which has been Britain’s “weakest performer” for some time, according to Aneisha Beveridge, of estate agents Hamptons.She said: “In inner London, prices have fallen in 28 of the last 36 months and are now broadly back to 2019 levels, as higher stamp duty costs and wider tax changes have weighed most heavily on higher-value markets.“However, softer conditions are now spreading more widely across the capital. Higher borrowing costs and the expense of moving are continuing to limit activity, meaning those who don’t need to move are increasingly sitting tight.”London has historically led Britain’s housing market, but house prices have struggled over the last year amid Labour’s tax raids.The capital’s market has been particularly hit by the Government’s changes to non-dom status and higher stamp duty rates.In November, Rachel Reeves, the Chancellor, also announced that from 2028 a council tax surcharge would be applied to houses worth £2m or more.London is expected to be hit the hardest by the tax raid. Of the top 20 constituencies with the highest share of £2m-plus homes, 16 were in London and four were in the South East.Hamptons has warned that properties worth £2m could see a 5pc price correction as a result of the so-called “mansion tax”.ONS data showed that there was also a smaller decline in property prices of 0.6pc across England, where the average price was £290,000, compared with a year earlier. Average UK house prices remained unchanged.Jeremy Leaf, a North London estate agent and former Royal Institute of Chartered Surveyors residential chairman, said: “The data shows that the Iran war is catching up with buyers and sellers with its inevitable impact on confidence.“Overall, on the ground, sales are proceeding but more slowly and taking much longer to complete, with price reductions and renegotiations commonplace.”The war in Iran has pushed up mortgage rates as lenders predict that soaring energy prices will revive inflation and force central banks to raise interest rates.On Tuesday, the average mortgage rate was 5.64pc up from 4.91pc three months before, according to Moneyfacts.The ONS said that the annual UK house price inflation rate had slowed in part because average monthly prices fell by 0.4pc between February and March this year, compared with a large monthly rise of 1.2pc in the same period last year.This rise in 2025 happened before changes to stamp duty in England and Northern Ireland, which lowered the thresholds at which the tax was due, with buyers rushing to complete before April.