Speculation around potential property tax reforms in November’s Budget have eroded buyer and seller confidence at the top end of the housing market, says Savills.
It warns that market sentiment is declining across the board, especially relating to so-called prime properties at the top end of the market.
A recent Savills survey of almost 1,000 prospective prime buyers and sellers revealed that 37% had become less committed to buying in the next six months (lowest level in five years), directly as a result of tax speculation. In contrast, only 10% had become more committed to moving in that period.
“Speculation that the Chancellor could announce changes to property tax in the Autumn Budget has further slowed down an already price sensitive prime housing market, making it increasingly reliant on needs-based buyers,” says Lucian Cook, head of residential research at Savills.
“Buyers and sellers have been left trying to make sense of what different measures might mean for them without any guarantee of what is going to prevail. While there will inevitably be winners and losers, the simple fact that they have been mooted so well in advance of the Budget has curtailed the Autumn market. This alone is likely to mean a dip in tax revenues in the run up to the budget.”
Savills’ survey indicates that second home buyers and investors are most likely to put plans on hold, despite the value on offer. This comes as the majority of buyers and sellers stated that they were most concerned about the proposed extension of capital gains tax on existing or future gains from high-value homes.
“Normally, we would expect the prime housing market to lead a recovery, but the opposite is true in the current environment. Ultimately, any tax changes are likely to take a while for the market to absorb before it enters a delayed recovery phase,” says Cook.
Central London’s prime property market continues to contend with the lingering impact of earlier policy shifts, which has been compounded by fresh speculation over taxation.
Over the past three months (Q3), values have fallen 1.8% in Prime Central London, marking the most significant quarterly fall in values since December 2016 (following Brexit vote and introduction of stamp duty surcharge). Values in this most rarefied market now sit -24% below the 2014 market peak.
While the pace of falls has picked up over the quarter across all parts of London, the most resilient markets include leafy, family-oriented markets such as Barnes, Fulham, Wandsworth and Wimbledon.
“Across the board, house values are holding up better than flats, supported by domestic demand, most notably in South West London, which is most synonymous with needs-based buyers,” comments Frances McDonald, director of research at Savills.
“Meanwhile, the most discretionary, top end of the market (£10 million-plus), is experiencing the greatest downward pressure on prices. The pool of buyers who are typically interested in this price point had already shrunk after the end of the non-dom regime, and some who remain are hesitant to act ahead of the Budget announcement. Nevertheless, there remains an undercurrent of demand from those eager to capitalise on the historic value currently available.”
Across prime regional markets, the rate at which values are falling has eased back since Q2. Overall values are down by an average -1.3% in Q3 and -3.6% annually, with only the Midlands and North and Scotland remaining broadly flat on the year.
Generally, City markets are outperforming their more rural surrounds as the market continues it rebalancing post-Covid (-0.8% fall for urban markets vs -1.6% for surrounds). The strongest performers include Cheltenham, Edinburgh City, Glasgow City and York.
“Over the past year, country and coastal markets have been challenged with ongoing concerns around council tax reform, and now face fresh speculation around additional taxation, placing downward pressure on pricing. This is being felt most keenly in the prime country house market, where values are down -8.1% on the year. The market, particularly above £3 million, is adjusting to a smaller pool of active and committed buyers,” continues McDonald
“It is important to note that these falls come off the back of rapid price growth during the post-pandemic housing surge (+25% for coastal markets and +18.4 for the Cotswolds). Growth across coastal markets and the Cotswolds, in particular, remain in positive territory when looking at growth over the past five years.”