Prime Property Market in London Begins to Slow Down
The demand for high-end properties in London has slowed down significantly as wealthy buyers balk at steep property prices and higher stamp duty rates for the most expensive homes.
According to the Financial Times, the property market in London remains subdued despite the Conservative’s surprise victory in last month’s General Election, which was expected to produce an increase of buying activity.
It is believed that an “expectation gap” had been created between buyers and sellers in the prime market, with vendors expecting a post-election increase that failed to materialise.
Tom Bill, Knight Frank head of London residential research said: “Seasonally you tend to see prospective buyers registering with estate agents in May. But that hasn’t happened post-election.”
Buyers have become more price-sensitive, Knight Frank claimed, after prices shot up by “an exceptional” 42% in prime central London over the five years up to June 2015.
House-buyers at the higher end of the market have also been reluctant due to increases in stamp duty tax that came into effect in 2014.
There has, however, been a substantial increase of British buyers looking to invest in property at the higher end of the scale due to the continued economic recovery in the UK. It is believed that around two-thirds of the prime London market has been snapped up by eager British buyers. “That trend has held from 2013 until today. UK buyers are back with a bang”, remarked Grainne Gilmore, head of UK residential research.
There has been evidence to suggest that the UK housing market has recently showed signs of beginning to slow down after figures released by Nationwide suggest that house prices rose by an annual 4.6% in May, down from 5.2% the previous month and half the rate at the same period in 2014.
Knight Frank believes that higher stamp duty for properties over £1.1m has encouraged buyers to ask vendors to factor that in to their selling prices, bringing prices down overall. Ms Gilmore noted: “What you’re seeing on stamp duty is that people are negotiating to a certain extent and coming to agreements over pricing.”
Stamp duty for a property worth £5m, for example, has increased from £350,000 to £513,750 under the latest reforms. These are not the only costs though: ancillary fees for someone moving from a home valued at £1m to one costing £2m, in addition to stamp duty of £273,750, would usually include legal fees of £15,000, agent’s fees of £30,000 and other costs estimated at around £15,000.
“That’s a serious piece of after-tax income,” said Simon Knight, chief executive of broker John Charcol. “It’s now quite expensive to move house-the changes to stamp duty have caused people to think three times before buying.”
The demand for prime country houses outside of London has also slowed right down, with annual price rises declining to 2.3%, the lowest level in two years. Prime values rose by 0.9% between April and June, further highlighting the fact that the election had failed to boost the property market.
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