London calling, but not as loudly as before

The long-standing belief that UK property is a one-way bet for wealth accumulation is now being challenged, with new research showing the market’s investment appeal has sharply diminished since 2016.

In a study titled ‘Don’t Bet the House’, London-based wealth manager Rathbones finds that the golden age of residential property investment, which spanned from 1980 to 2016, has decisively ended. 

London house prices during that period rose by 8.5 per cent each year, ahead of a national rise of 6.7 per cent, underpinned by a generational decline in interest rates and restricted supply. Since then, however, real returns have stagnated.

From 2016 to 2024, London property prices have risen just 1.3 per cent each year, underperforming inflation by 2.2 percentage points. Outside the capital, returns were slightly better, just keeping pace with inflation. In contrast, a diversified equity portfolio with 25 per cent UK and 75 per cent global exposure returned 3.4 percentage points above inflation annually over the same period.

“A hundred pounds invested in London property in 2016 would now be worth just £111 ($148),” says Oliver Jones, head of asset allocation at Rathbones. “Put that same sum into global equities, and you’d have £174. The old idea that ‘you can’t go wrong with bricks and mortar’ is simply no longer true.”

The implications of this structural shift are reverberating through the strategies of private banking clients. James Whittaker, UK head of Deutsche Bank Private Bank, notes that clients are adopting a more cautious stance.

“Weak price growth and higher borrowing costs have significantly reshaped property strategies,” Mr Whittaker says. “Many clients are choosing to rent while they wait for the right opportunity. There’s a noticeable preference for ‘turnkey’ houses over redevelopment projects, especially among £10m+ transactions.”

The UK’s phasing out of the controversial non-dom regime, replaced by the new FIG (Foreign Income and Gains) framework, has further dulled appetite among international buyers, although Mr Whittaker sees signs of life from Middle Eastern and Asia-Pacific clients returning to the market, encouraged by currency dynamics and relative value.

Changing appetites

Despite the cooling of conventional buy-to-let interest, appetite for residential investments has not disappeared. It is simply changing form. Investors are increasingly targeting ‘living sector’ assets: build-to-rent, student accommodation, senior living, and affordable housing.

“High net worth investors remain interested in UK residential, but are pivoting towards purpose-built rental and development assets,” Mr Whittaker adds. “These offer operational resilience and are often structured more efficiently from a tax and regulatory perspective.”

There is also growing demand for non-traditional real estate sectors. Deutsche Bank reports rising allocations to data centres, logistics, energy storage and military-related infrastructure, driven by macro trends including AI, electrification, and the UK’s industrial policy shift.

Other private banks echo this view. “Despite tax changes and economic uncertainty, appetite for prime residential remains strong, particularly when properties are rare or generate income,” says Robert Morrall, head of lending solutions at Standard Chartered Global Private Bank. “We’re seeing increased interest in repositioning assets and taking advantage of current market conditions.”

Location strategy is becoming increasingly nuanced. While London remains a global destination, regional disparities are shaping capital flows.

Mancs on a roll

“Regions like the north-west and Midlands are outperforming the south, driven by better affordability and lighter tax burdens,” says Mr Whittaker. “In some cases, homes in Manchester sell nearly twice as fast as in Kensington or Westminster.”

This is driving a reallocation of capital to areas where liquidity and yield prospects are more attractive, especially for investors focused on rental income or redevelopment projects.

Sustainability considerations are also influencing decisions. Investors are increasingly scrutinising energy performance, climate risk and carbon impact. Deutsche Bank is actively lending to support the transition of client portfolios from “brown to green”, including refurbishment loans and bridge-to-redevelopment financing.

“These are no longer fringe issues,” Mr Whittaker says. “EPC ratings and ESG alignment now affect not just values but also lending terms and long-term viability.”

What emerges from Rathbone’s research and private banks’ frontline experience is a consensus: the UK housing market is no longer the surefire wealth generator it once was. With regulatory headwinds, higher interest rates and tepid price growth, property is losing ground to equities and new asset classes.

“We’re being asked more often whether it’s time to sell up and reinvest elsewhere,” says Ade Babatunde, associate financial planning director at Rathbones. “The old assumptions about property delivering long-term outperformance just don’t hold anymore.”

For wealthy investors, the message is clear: property may still be part of a diversified portfolio, but it is no longer the centrepiece.