The Bank of England began raising rates in late 2021. By mid-2023 the base rate stood at 5.25%, its highest level since 2008. For a market that had absorbed three and a half years of stagnation and then a two-year boom, this was a significant shock to affordability. The common expectation was a substantial correction.
What actually happened, in the aggregate, was remarkably muted. The London-wide median transaction price per square metre moved from £6,590 at the July 2022 peak to £6,611 by August 2025 — a change of just +0.3% over three years. On the surface, prices held.
Underneath, the factor model tells a considerably more unsettling story — particularly if you own a flat.
The quality-adjusted baseline market factor rose +11.6% during this period — even as nominal prices barely moved. This is not a contradiction. As the outer-London transaction boom subsided and higher-value properties returned to the market in greater numbers, the composition of transactions shifted. Fewer cheap outer-London sales meant the raw median stopped rising. But the quality-adjusted model shows that like-for-like, in any given postcode, at any given size and spec, prices kept appreciating.
The flat premium fell a further -0.6% during this period — a modest absolute move, but one that pushed the cumulative total to a level not seen in the entire 30-year dataset. Flats are now at a small but genuine discount to equivalent houses on a quality-adjusted basis.
This matters structurally. For three decades London flats commanded a premium because of density, Zone 1 proximity, and investor demand from overseas buyers. The reversal is driven by the compounding of several pressures: leasehold reform legislation creating uncertainty, building safety levies following the cladding crisis, rising service charges, and a reduced appetite from buy-to-let investors facing higher mortgage costs. None of these factors resolved during 2022–2025.
During the COVID boom, new builds had recovered by +2.3%. During the rate-rise period they gave back -5.3%, ending at roughly an 8.5% discount to equivalent second-hand stock on a quality-adjusted basis. Higher mortgage rates hit new builds disproportionately: buyers of new homes typically need larger mortgages (because new builds are priced at a premium on entry), and developers faced cost pressure that squeezed completions.
The floor area factor fell a further -5.1%, extending a decline that began before COVID and accelerated through the boom. On a quality-adjusted basis, larger-than-average properties now attract a discount per square metre rather than a premium. The "race for space" premium, to the extent it ever existed in the factor model, has fully unwound and then some.
| Factor | Period return | Direction |
|---|---|---|
| Baseline Market | +11.6% | Quality-adjusted appreciation continued despite flat nominal |
| Freehold | +0.7% | Houses modestly outperformed flats and leasehold |
| Energy Score | +0.4% | First positive move — green premium starting to emerge |
| Flat Premium | -0.6% | Turned negative for the first time in 30 years of data |
| Floor Area | -5.1% | Space premium fully reversed; larger homes at a discount per sqm |
| New Build | -5.3% | COVID recovery entirely reversed; back to ~8.5% discount |
Factor returns, July 2022 – August 2025
The postcode picture confirms the split: outer areas largely held their COVID-era gains against the peak, while prime central showed modest softness.
| Area | Jul 2022 peak (£/sqm) | Aug 2025 (£/sqm) | Change from peak |
|---|---|---|---|
| SW (Chelsea / Battersea) | £9,596 | £9,421 | -1.8% |
| TN (Sevenoaks fringe) | £4,792 | £4,710 | -1.7% |
| W (Kensington / Notting Hill) | £10,027 | £10,444 | +4.2% |
| NW (Hampstead / Kilburn) | £8,275 | £8,496 | +2.7% |
| SE (Bermondsey / Greenwich) | £6,818 | £6,915 | +1.4% |
| N (Islington / Holloway) | £7,957 | £8,032 | +0.9% |
| RM (Romford) | £5,213 | £5,247 | +0.7% |
| DA (Dartford / Bexley) | £5,229 | £5,282 | +1.0% |
| London median | £6,590 | £6,611 | +0.3% |
Nominal price change from July 2022 peak by area
The most notable observation: most outer areas held their COVID gains almost entirely. RM, DA, and CR each gave back less than 1% from peak. The correction was concentrated in high-value areas and in asset types — flats and new builds — that carried structural headwinds.
One factor moved in a new direction during this period: energy score. After years of showing no premium for A/B-rated homes, the energy score factor turned modestly positive, gaining +0.4%. This is a small number, but it is the first consistent positive reading in the dataset. With EPC requirements for rental properties tightening and energy costs having risen sharply, the market may be beginning to price in efficiency — a trend likely to strengthen in the coming years.
Three years of rate rises produced a correction that was structural rather than broad. Owners of houses in outer London largely escaped. Owners of flats — particularly new-build flats in inner zones — absorbed the full force of it. The cumulative effect of Brexit, COVID, and rate rises has produced a London property market that looks increasingly bifurcated: outer areas at valuations that still look reasonable, and inner-zone flats carrying a premium that has structurally compressed.
Enter any London postcode to see how your area performed through the correction — and what the factor model says about its current valuation.
Analyse a Postcode →Factor returns are derived from a rolling 3-month cross-sectional OLS regression of log(price/sqm) on eight property characteristics, run on every Land Registry transaction matched to an EPC certificate. All returns are computed within this period only. Nominal transaction prices are the median of raw Land Registry £/sqm figures by postcode area. The most recent 2–3 months of data have been excluded due to Land Registry reporting lag, which thins out transaction counts for recent months. See the factors page for full definitions.