London's quality-adjusted property market posted its strongest year-on-year gain since the pandemic boom. Our hedonic factor model — which strips out compositional changes in what's selling to isolate genuine price moves — shows the Baseline Market factor rose 15.2% in the twelve months to December 2025. That is a remarkable figure given the rate environment, and it sits alongside some equally striking divergences beneath the surface: flats lost another 7.2%, new builds staged a meaningful recovery of 7.1%, and larger homes continued to trade at a growing discount per square metre.
This update uses Land Registry transactions matched to EPC certificates through December 2025. As always, we exclude the most recent two to three months of data (January–March 2026) because Land Registry reporting lags produce thin volumes and noisy estimates in those periods.
The Baseline Market factor — the intercept in our rolling regression of log(price/sqm) on eight property characteristics — captures market-wide price appreciation after controlling for what is actually transacting. Over the twelve months to December 2025, it rose 15.2%.
To put that in context, the COVID boom of 2020–2022 delivered roughly 15–16% annualised growth at its peak. The current reading is comparable in magnitude, though it arrives from a different starting point. Following the rate-rise correction of 2022–2025, prices had fallen back from their July 2022 peak. The past year's surge represents a recovery of lost ground rather than fresh exuberance.
It is worth noting that nominal median £/sqm figures reported elsewhere may not match this 15.2% number. Our factor model controls for shifts in the mix of properties transacting — if, for example, a disproportionate share of expensive homes sold in one month, a simple median would rise even if no individual property gained value. The Baseline Market factor strips that effect out.
The table below shows the year-on-year return for each of the eight factors in our model, covering the twelve months to December 2025.
| Factor | 12-Month Return (%) | Direction |
|---|---|---|
| Baseline Market | +15.2 | ▲ Strong rise |
| New Build Premium | +7.1 | ▲ Recovery |
| Freehold Premium | +1.0 | ▲ Marginal |
| Energy Score | +0.5 | ▲ Marginal |
| Floor Area (non-linear) | -0.1 | — Flat |
| Room Count | -0.0 | — Flat |
| Build Period | -0.0 | — Flat |
| Flat Premium | -7.2 | ▼ Significant decline |
| Floor Area | -9.7 | ▼ Sharp decline |
Three stories stand out from these numbers.
The Flat Premium factor fell 7.2% over the past twelve months. This is not a new trend — flats have been losing ground relative to equivalent houses since the Brexit period, when the factor sat at roughly +10%. By December 2025, the cumulative position of the Flat Premium factor implies flats now trade at a discount to equivalent houses, after controlling for size, location, energy rating, and other characteristics.
The drivers are well-documented: the post-Grenfell cladding remediation programme continues to weigh on buyer confidence in purpose-built blocks; remote and hybrid working patterns have entrenched demand for space over convenience; and leasehold reform uncertainty has dampened appetite for flat-typical tenure structures. The 7.2% year-on-year decline suggests none of these headwinds have abated.
For investors holding flats as buy-to-let assets, this is a structural concern. A flat that was worth the same per square metre as an equivalent house in 2016 is now worth meaningfully less — and the gap widened further in 2025.
The New Build Premium factor rose 7.1% over the year, a sharp reversal from the persistent discount that characterised new builds through most of the post-2016 period. During the rate-rise correction, new builds had fallen to a cumulative discount of roughly 8–9% versus equivalent second-hand stock. That discount has now narrowed substantially.
What changed? Two plausible explanations. First, the pipeline of new London completions thinned as developers paused projects during the rate-rise period, reducing supply of new-build stock coming to market. Second, tightening EPC requirements have made buyers more conscious of energy efficiency — and new builds, which almost universally carry A or B ratings, benefit from that shift. The Energy Score factor itself only moved +0.5% over the year, but buyer behaviour around new builds may be capturing a broader preference for "future-proofed" stock that the energy factor alone does not fully reflect.
The Floor Area factor fell 9.7% in twelve months — comfortably the largest move of any factor. This means that larger homes are now trading at a steeper per-square-metre discount relative to smaller homes than at any point in recent history. The cumulative position of -9.0% (from the 1995 baseline) confirms that the long-running premium for size has entirely reversed and then some.
This is counterintuitive at first glance, given the "race for space" narrative. But the factor measures the per-sqm premium, not total price. A 150-sqm house may sell for more than a 60-sqm flat in absolute terms, but per square metre the larger property now trades at a meaningful discount. This likely reflects affordability constraints: as mortgage rates rose and remained elevated, buyers stretched to purchase the biggest home they could, pushing per-sqm prices down at the top end of the size distribution while smaller, more affordable-per-unit properties held their per-sqm values.
Sellers of houses are in a strong position. The 15.2% baseline rise, combined with positive freehold and new-build factors, means well-maintained houses — particularly compact, energy-efficient ones — have appreciated faster than any headline index suggests.
Flat owners face a more difficult calculation. The 7.2% decline in the Flat Premium partially offsets the 15.2% baseline gain, leaving quality-adjusted flat values up roughly 7–8% on the year. That is still positive in nominal terms, but it materially underperforms the wider market — and the trend shows no sign of reversing.
Buyers of larger properties may find relative value. The 9.7% decline in the Floor Area factor means per-sqm prices for bigger homes are compressed. If you can afford the total outlay, you are getting more space for less per square metre than at any point in the past decade.
As always, London is not a single market. Our factor model page tracks all eight factors monthly, and the postcode-level tool lets you see how your specific area is performing relative to these London-wide trends.
Our factor model adjusts for property type, size, energy rating, and tenure — but location matters too. Use our free postcode tool to see quality-adjusted price trends for your area.
Analyse a Postcode →Our factor model runs a rolling three-month cross-sectional OLS regression of log(price/sqm) on eight property characteristics for every Land Registry transaction in London matched to an EPC certificate. The regression is estimated monthly, producing time-varying coefficients that capture how the market prices each characteristic. The intercept (Baseline Market) measures quality-adjusted market-wide appreciation; the other seven coefficients measure the evolving premium or discount for each property feature. Period returns are computed as (1 + val_B/100) / (1 + val_A/100) − 1 where val_A and val_B are cumulative percentage returns from the January 1995 baseline. We exclude the most recent two to three months of data due to Land Registry reporting lags, which produce thin transaction volumes and unreliable estimates. Full methodology and interactive charts are available on our factors page.