Political developments in Westminster are becoming a bigger influence on the outlook for London’s prime property markets than global events, according to new analysis from Knight Frank.
While concerns over the Middle East and energy prices have eased in recent weeks, the agency believes growing uncertainty around the future direction of UK politics is now weighing more heavily on sentiment among high-value property buyers and investors.
Tom Bill, head of UK residential research at Knight Frank, argues that debates over taxation, government spending and housing policy could have a more significant impact on the market than mortgage rates or international events over the coming year.
The agency points to increasing political tensions within both Labour and the wider political landscape, with speculation over future leadership, tax policy and potential housing reforms creating uncertainty for wealthier buyers.
“A Prime Minister to the political left of Keir Starmer may also mean increased speculation around policies such as rent caps, a trial balloon that the current government quickly shot down in April,” said Bill. “With the Labour Party likely to retreat into its political comfort zone, it’s difficult to see an outcome where the government doesn’t move to the left, irrespective of who is leader.”
Knight Frank warns that if the government faces growing pressure over public finances, further tax measures targeting assets, wealth and property could remain firmly on the agenda. The possibility of renewed debate around policies such as rent controls is also likely to be closely watched by investors and landlords.
The backdrop remains challenging for London’s prime markets. Knight Frank says high rates of stamp duty, changes to the non-dom regime and elevated borrowing costs continue to weigh on demand.
Average prices in prime central London fell by 3.6% in the year to May and are now 22.1% below their 2015 peak. In prime outer London, prices declined by 0.5% over the past 12 months, leaving values 7.2% below their 2016 high.
Transaction levels also remain subdued. The number of exchanges across prime central and prime outer London during the first four months of 2026 was 12% lower than the same period last year, although comparisons are affected by changes to stamp duty.
Supply and demand trends continue to favour buyers. Knight Frank data shows the number of prospective buyers entering the London market was 18% below the five-year average during the first four months of the year, while Rightmove data indicates that listings were 11% higher than normal levels.
According to Knight Frank, the extent and duration of downward pressure on prices will depend largely on political and economic decisions made in Westminster over the coming months, rather than developments overseas.
