London housing market weakened long before Brexit vote

As prices fall amid political uncertainty, stamp duty reforms squeezed property transactions in London

In parts of London prices have slipped, and so too has demand. Getty Images

The number of houses brought and sold in London has dropped since 2014, long before Britain’s vote to leave the European Union.

This is mainly due to reforms on stamp duty, a tax on residential properties worth £125,000 (Dh573,200) or more in the UK.

The rate at which buyers pay stamp duty increases in line with the value of a property; while houses on the lower end of the property price spectrum between £125,000 and £250,000 incur taxes worth 2 per cent of any given property value, anyone purchasing property worth more than £1.5 million can expect to pay an additional 12 per cent stamp duty rate, equivalent to an extra £180,000 or more.

Homeowners pay the stamp duty tax when a freehold property, a new or existing leasehold, or a property through a shared ownership scheme is purchased. First-time buyers are entitled to a discount.

Reforms between 2014 and 2016 appear “to have had a much bigger effect on the market”, according to a new report by Indosuez wealth management.

In December 2014, the stamp duty structure was overhauled and buyers of homes worth more than £937,500 saw their purchase costs increase.

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London saw a marked fall in the number of houses sold on the back of tax changes, and because of the high number of expensive property in the capital compared to the rest of the UK.

A second change in 2016 meant sales in London tumbled, after a surcharge for anyone buying a second home was introduced by the UK government. Despite low interest rates, landlords have been put off from owning buy-to-let properties with the phasing out of tax relief.

Meanwhile, average house prices in central London have spiralled down 19 per cent since 2014.

Prices in the capital slumped by 4.4 per cent year-on-year in May, according to the UK’s Office for National Statistics (ONS), representing the biggest fall since August 2009 amid the global financial crisis.

“Over the past three years, there has been a general slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England,” the ONS said on Wednesday.

London house prices are expected to continue dropping as Brexit uncertainty and the possibility of Britain leaving the European Union without a deal appears increasingly likely. The average home owner in the city has lost £20,000 in the slump so far.