The latest prime London market snapshot from Knight Frank suggests muted activity so far this summer and warns of possible hesitancy ahead of Labour’s first Budget in October.
The agency says that in June the number of offers on prime London homes for sale was 19% below the five-year average; in July it was 6% below. Both months were possibly affected by purchasers awaiting the end of the General Election campaign.
But Tom Bill, head of UK residential research at the agency, says: “Demand should rise in the autumn following this month’s rate cut, which increased the likelihood of more mortgages falling below 4%. Last week, financial markets were pricing in a further cut of 0.25% in November and between four and five over the next year. Despite the pre-holiday mood of hesitation, many transactions already in the pipeline were completed, largely driven by buyers needing to move.”
The number of exchanges in London in June and July was 8.4% above the five-year average, which Bill puts down to a release of pent-up demand following 12 months of frustratingly-high inflation.
He continues: “The improving economic backdrop will boost activity in mainstream property markets this autumn but the Budget on October 30 provides an extra obstacle for prime markets. For example, the decision to impose VAT on private schools from January could curb demand in some higher-value areas when people return from their summer break. Buyers could be squeezed further if changes are made to pension tax relief, inheritance tax or capital gains tax.”
But Bill welcomes recent clarity on how the government intends to change the rules for non doms, the 74,000 individuals living in the UK who do not pay tax on their non-UK income.
Labour had previously adopted the position that under the new system, all overseas trusts would be subject to inheritance tax irrespective of when they were set up, which was potentially a trigger for a number of non doms to leave the UK. It has now changed position slightly by acknowledging that an “appropriate adjustment of existing trust arrangements” is needed, which Knight Frank calls “a tentative step in the right direction.”
Average prices in prime central London fell 2.4% in the year to July, which was the same annual reading for the third successive month.
Prices are 4.5% down on their pre-Covid levels and 17.6% below their last peak in August 2015. Recent declines in prime outer London (POL) have been smaller thanks to an active market during Covid and the fact demand has been underpinned by buyers needing to move for reasons that include employment and schools. There was a 0.4% decline in the year to July in POL, while prices are 3% higher than their pre-Covid level and 7.6% below their last peak.
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