Demand for property in London remains fragile despite the Bank of England freezing the base rate last month, a new report by Knight Frank reveals.

While the number of new prospective buyers in London rose 12% between August and September, the estate agency say this is half the increase experienced in the previous two years.

The downwards trajectory for annual rental value growth in prime London markets continued in September as supply increased and demand held steady.

The number of new prospective tenants in prime London postcodes was flat compared to the five-year average in the third quarter of this year, the data shows.

Annual rental value growth in prime central London (PCL) was 11.2% in September, which was the lowest figure in two years.

Meanwhile, listings in PCL were only 12% down according to Rightmove, compared to a decline of 37% in the same quarter last year.

Head of UK residential research at Knight Frank, Tom Bill, says: “The Bank of England paused its cycle of interest rate hikes in September, but demand for residential property remains fragile.

“While the number of new prospective buyers in London rose 12% between August and September as this year’s autumn market began, it was half the increase experienced in the previous two years.

“In calmer political times before 2016, the same jump exceeded 40%.”

He added that last month’s base rate freeze ‘added to a sense that we have gone through the eye of the storm’.

Knight Frank is forecasting a 3% decline in both prime central and outer London this year, as those markets continue to outperform the rest of the UK.

The research shows the number of new prospective buyers across the UK was 11% down in the third quarter of this year compared to the five-year average, while the figure for London was up by 13%.

Meanwhile there was a 14% increase in exchanges in the capital while sales volumes fell by 9% across the country.

Knight Frank says the primary reason for this resilience is the fact average prices are still 16% below their last peak in 2015 in prime central London. In prime outer London, they are still 8% down.

Average prices are also 2% lower than they were before the pandemic, which it says explains why transaction volumes were 7% higher than the five-year average in September.

Tom Bill, head of UK residential research at Knight Frank said: “In a departure from what took place after the global financial crisis, property prices in London have been far less volatile than the rest of the country during this latest period of economic turbulence.”

Knight Frank says as the imbalance between supply and demand continues to reduce, it expects rental value growth will return to more normal levels from 2024.

It expects 5% growth in prime central London next year and 4.5% in prime outer London.