Tax raid deepens London’s housing market downturn: agents

[LONDON] London is experiencing the most widespread declines in house prices in the United Kingdom, estate agents warned, as the capital bears the brunt of Labour’s new tax on high-value homes.

The Royal Institution of Chartered Surveyors (Rics) said that its gauge of London property values dropped to minus 44 in November, the lowest in more than two years. A negative score indicates that agents reporting a fall outnumber those reporting an increase.

The capital had the worst reading of any UK region for the first time since 2022. It suggests the so-called mansion tax, an extra levy on residences worth more than £2 million (S$3.5 million), is “exerting further downward pressure in the capital”, according to the report. The tax disproportionately hurts London, as the city is home to nearly 60 per cent of all the properties over £2 million.

Although the surcharge was only confirmed in the Nov 26 Budget, there had been widespread speculation that Chancellor of the Exchequer Rachel Reeves was planning to target the top end of the property market as she sought billions of pounds of extra tax revenue to fix the public finances.

It has delivered a fresh blow to a section of the market that was already under pressure from hikes to stamp duty and the departure of wealthy foreigners fleeing a crackdown on so-called non-doms.

Official figures show house prices in London’s most affluent neighbourhoods plunged in the months before the Budget, and broker Hamptons predicts further declines in the £2 million-plus bracket.

“The unusual run-up to the Budget certainly paused the market with little buying activity,” James Perris, a managing director at De Villiers in London, said in comments accompanying the Rics report. “The further tax on high-end property will do nothing to bolster a sector of the market successive governments have damaged.”

Rics painted a bleak picture of the UK housing market as a whole. An index of new buyer demand declined to the lowest since 2023, while sales remained firmly in negative territory. Property agents blamed speculation over tax rises and “media leaks” in the run-up to the Budget for hitting demand.

There are a few indications that the housing market will improve in the coming months. Near-term expectations point to flat sales activity and a slightly weaker outlook for prices as affordability remains a constraint.

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Prospective buyers also face pressures from weaker real wage gains and a deteriorating jobs picture. The Bank of England is expected to provide limited support going forward, with policymakers likely approaching the final stage of their rate-cutting cycle.

However, activity could pick up further down the line. Rics’ indicator for sales over the next 12 months improved in November, posting its best reading since May.

“The housing market has been struggling for momentum for several months, and the recent Budget announcements are unlikely to materially shift that picture,” said Rics chief economist Simon Rubinsohn. “The ending of Budget-related uncertainty is welcome, but the fundamental challenges of affordability and elevated borrowing costs will in all probability keep activity subdued in the near term.” BLOOMBERG