Inner London’s decline is the sharpest for a calendar year since 2008, when prices plunged around 13% in the wake of the credit crunch and subsequent recession

Inner London house prices recorded their biggest drop since the global financial crisis, indicated official data for last year.

The Office for National Statistics said on Wednesday that prices were down 4.6% for inner London boroughs in December, compared with a year earlier. The suburbs painted a different picture, however, with prices increasing 0.9%.

Inner London’s decline is the sharpest for a calendar year since 2008, when prices plunged around 13% in the wake of the credit crunch and subsequent recession. Neighbourhoods have struggled to recover from large numbers of people who moved further out of the city during the Covid pandemic, taking advantage of the chance to do more work from home.

Some expensive central areas may also have suffered from the so-called mansion tax, confirmed by Chancellor of the Exchequer Rachel Reeves in November last year after months of speculation. The Labour government’s new levy will apply to homes worth more than £2 million, starting in 2028.

Overall, London’s house prices dropped 1%, making the capital the only English region in negative territory. Prices in England as a whole rose 1.7%, with the biggest gains in the north. In the south-east region outside London, prices were flat.

The modest decline in London will nonetheless do little to ease affordability pressures in a city where house prices are double the UK average at over £550,000.

Experts might see the slight fall in London house prices as the market cooling, but millions of people are still being priced out of decent housing, condemned to sky-high rents or crippling mortgages, said Sam Richards, chief executive officer of the Britain Remade lobby group.