UK’s prime housing market hit by tax changes

Tax rises on high-value properties, along with the prospect of a "mansion tax" and the uncertainty caused by a looming general election, have made homes that are worth more than £2 million ($3.24 million) much harder to sell, according to research for the Financial Times.

More than half of all properties in London's most expensive central areas have been withdrawn unsold in the six months to the end of June, the research by the property data company Lonres and analysts Dataloft shows.

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A general view of Egerton Crescent in the Royal Borough of Kensington and Chelsea.
Dan Kitwood, Getty Images News
A general view of Egerton Crescent in the Royal Borough of Kensington and Chelsea.

Since March 2012, buyers of homes worth more than £2m have been charged 7 per cent stamp duty. Those buying houses worth less than £125,000 pay no stamp duty, while purchasers of properties worth between £125,000 and £2m pay a sliding scale of between 1 and 5 per cent.

Before the top rate was introduced, between 20 and 30 per cent of £2m-plus homes on the market in London's most expensive central areas were withdrawn unsold. That proportion rose after the new stamp duty band was brought in, with the trend intensifying this year.

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Anthony Payne, Lonres managing director, said: "The £2m stamp duty and mansion tax threshold remains a sticking point in the market."

The figures are evidence that taxes do have an impact on the market for high-end homes, and are the latest example of the slowdown at the top end of London's housing market.

Both Labour and the Liberal Democrats have promised to add to the financial burden on the owners of high-value homes by introducing an annual mansion tax on residences worth more than £2m if they win next May's election. Labour are currently leading in the polls.

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"There's no doubt that the upper end of the prime central London housing market has started to slow and it comes as little surprise," said Mr Payne. "A raft of taxes aimed at the upper price thresholds, the strengthening of sterling, talk of a mansion tax, increased stability in the global economy and the upcoming general election have all combined to affect [buyer] sentiment."

One in five properties available for sale in prime central London in the first six months of this year had its price reduced, Lonres and Dataloft found.

Homes worth more than £5m received the biggest discounts, with sellers cutting prices by an average of 10 per cent in an attempt to attract buyers.

Withdrawals were particularly concentrated in the £2m-£5m price bracket. Two-bedroom flats were the most common type of property to be withdrawn. London's most luxurious areas – Knightsbridge and Mayfair – saw the highest proportions of withdrawals.

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Less well-known areas, such as Pimlico and West Brompton, which are on the fringes of London's prime zone, saw fewer withdrawals.

Roarie Scarisbrick, a partner at property-buying advisers PropertyVision, said the increase in taxes was making it harder for families in London to move up the housing ladder.

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"The trade-up gap grows ever wider and the associated transaction costs make moving less and less attractive, so less stock means higher prices," he said. "Incinerating £100,000 or more just in [transaction] costs makes people think twice about moving."

Homeowners who sought to cash in but did not need to sell were likely to withdraw their properties from the market if they could not achieve their desired price, he said.

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"The high number of withdrawn properties is a reflection of overambitious and often discretionary sellers failing to find a buyer," he said.

"Expect to see more withdrawals as the discretionary sellers give up and stay put when they can't sell."

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