In February 2025, the prime London housing market showed signs of recovery as average house prices increased by 0.6% on an annual basis, marking the first rise since June 2023, according to data from LonRes. This increase, although modest, signals a potential shift in the market that has been stifled by fears of further price declines. Currently, house values remain 1.2% below the pre-pandemic average.
Moreover, the same month witnessed the rental market gaining traction, with annual rental growth climbing to 6.0%. This was the highest growth recorded in 16 months and brought rents to a striking 33.3% above their 2017-2019 pre-pandemic average. These figures suggest that while the sales market is beginning to stabilize, the lettings market is potentially catching up from the disruptions caused by the pandemic.
According to LonRes data, new sales instructions in February 2025 were a remarkable 24% higher than in February 2024 and 47.5% above the pre-pandemic average from 2017-2019. This surge in new instructions has contributed to a significant growth in the stock of available homes for sale, which was up 11.6% compared to the previous year and 37.5% higher than in February 2020.
However, the actual number of transactions reported was 8.4% lower than in February 2024 but increased by 6.8% compared to the pre-pandemic average. Notably, under offer numbers saw an 11% rise annually, reflecting a growing interest amongst buyers—up 18.8% on the pre-pandemic average.
In the £5 million-plus market, the rebound was even more pronounced, with a staggering 13.8% increase in transactions compared to the previous year. New instructions in this luxury sector also shot up by 30%, indicative of a demand that persists despite fluctuating market conditions. Moreover, the stock of homes available in this premium bracket has risen by 21.1% over the past year.
Nick Gregori, head of research at LonRes, commented on these findings, stating, "While it’s only a single month of data and a small rise, a sign of return to growth might motivate buyers to become more active. This in contrast to a long period where demand has been depressed by fears of further price falls." His observation underscores a cautious optimism among real estate professionals as they monitor the market.
On the rentals side, the prime London lettings market is experiencing a different story altogether. The annual rental growth of 6.0% represents a noteworthy recovery for landlords and investors alike. Here, rental values for all categories have surged by more than 20% compared to five years prior, with 3+ bedroom flats seeing the largest hikes—annual growth reached an impressive 13.9% in February 2025.
However, the data does reveal some concerning trends; the LonRes report showed a staggering 42.1% drop in the number of leases agreed and a 29.4% fall in new rental instructions. This decline in available rental properties contributed to a 19.9% reduction in the stock of homes on the market compared to February 2024. Such dramatic reductions point not only to fewer listings but also possibly fewer available homes for rental altogether.
This contraction in the rental market highlights a distinct challenge for prospective tenants, who may grapple with limited choices despite rising rents. The market, once characterized by a wider array of options, is narrowing—a reflection of long-term trends that seem to be taking hold despite the post-pandemic recovery phase.
As the dynamics of the prime London housing market continue to evolve, particularly amidst rising inflation and fluctuations in borrowing costs, both buyers and renters will need to remain vigilant. Recent decreases in mortgage rates might provide a boost to the wider property market across the UK, even if prime London remains somewhat insulated from these trends.
Analysts and market observers will keenly watch how these factors play out in the coming months. With a growing sense of stability in the sales market and the lettings sector finding its feet again, the outlook still appears guarded yet hopeful for both buyers and investors in London's real estate landscape. As Nick Gregori suggests, the months ahead could very well see an uptick in market activity, particularly as buyer confidence begins to revive.
