Small price drops in prime central London neighbourhoods reflect a prospective increased tax burden which ranked as the top buyer concern (73%), followed by general market uncertainty (36%)
Prospective tax changes in next month’s Budget have caused buyers to become more cautious in the prime housing markets, offsetting the benefit of lower interest rates, according to an analysis by property firm Savills.
Its latest prime sales index (Q3) reveals that values for prime properties in predominately needs-based outer London markets rose slightly over the last three months (+0.2%).
Meanwhile those in Prime Central London, where demand is more discretionary, dropped by 0.7%, given concerns around changes in the tax environment and general market uncertainty.
Beyond London, prices of prime homes dropped slightly (down 0.5%), with short-term downward pressure on prices felt most keenly in prime coastal markets where second home ownership is most prevalent.
A more competitive mortgage environment, supported by the prospect of further interest rate cuts has continued to support activity across both the prime and mainstream housing markets, says Lucian Cook, head of residential research at Savills.
However, while we would usually expect the top end of the market to be the first to react to improved market conditions, concerns over what the budget may hold have made buyers more cautious, particularly in the most discretionary prime markets, says Cook.
In London, demand from needs-based domestic buyers has been spurred on by a more competitive mortgage market. As a result, the outer prime London property market returned to positive annual growth in the third quarter (0.9%) for the first time since December 2022.
Family houses popular among a younger demographic of wealthy homeowners, in areas like Hackney (up 1.8%) and Victoria Park (up 1.2%), have performed the strongest in the quarter.
Small price drops in prime central London neighbourhoods reflect a prospective increased tax burden which ranked as the top buyer concern (73%), as per Savills agents, followed by general market uncertainty (36%).
Tax concerns, including changes to non-doms tax status, have caused potential buyers in central London to take stock of their situation. However, while there is plenty of anecdotal evidence of people reviewing their tax status, there is little evidence of this resulting in more stock hitting the market, he says.
Although there is speculation about what the October Budget may bring, the downside risks in these markets are mitigated by the fact that values remain low in a historic context, and by the enduring appeal of the capital, which will ensure that even those affected are likely to keep a base in prime London neighbourhoods, he says.
Beyond London, prime markets are generally continuing to feel the effects of cooling market conditions post-pandemic.
As a consequence, demand for top-end properties located in regional cities and towns like Sevenoaks, York and Edinburgh, proved more robust than those located in villages and other rural locations.
While prices declined by 0.5% on the quarter across all prime regional markets, values in the Midlands and North of England, and across Scotland increased by 0.3%.
Further cuts to mortgage rates in the coming months are expected to gradually improve buyer sentiment more widely, says Savills.