Budget to dent prime property market
Measures introduced in the October Budget will weigh on the UK’s prime property market next year, with the value of prime central London (PCL) homes in line for a four per cent hit, a forecast has shown.
Fresh analysis by Savills said that changes to the stamp duty charged on second homes, VAT on school fees and non-dom reforms announce by Chancellor Rachel Reeves last month all mean that homes at the upper end of London’s prime market will lag behind the rest of the UK property sector.
The estate agent expects the mainstream property market to grow by four per cent next year, as falling mortgage rates stimulates more demand for homes.
But the demand rises in the wider market across 2025 and beyond won’t apply nearly as much to the UK’s prime market, with the capital’s upper-end expected to be worst affected, Savills said.
The real estate giant predicts prime outer London residential property will stay flat next year, while ‘prime regional’ – by which it means homes worth above £1.85m that are located outside London – will grow by two per cent.
Lucian Cook, Savills’ head of residential research, said: “In a normal housing market recovery, you would expect the top-end of the market to recover first, responding quickest to a change in sentiment.
“However, the additional stamp duty surcharge for second homes, changes in ‘non-doms’ taxation and VAT on school fees are likely to offset some of the impacts of future cuts in interest rates this time around.”
Prime homes in Central London – valued at more than £4.5m – will be worst affected by the Budget, which saw the Chancellor opt to rise stamp duty on second homes by two per cent.
The government also chose to abolish the non-dom status, which allowed wealthy foreigners not to pay UK tax on their foreign assets and income, and decided to apply VAT on private school fees, both of which will especially dampen demand in central London, Savills said.
The forecast represents a stark departure from consensus just a few months ago, when analysts were predicting the new Labour government would trigger a resurgence in prime property valuations on expectations of greater macroeconomic stability and lower interest rates.
The market is expected to pick up beyond 2025, however, with PCL forecast to grow 9.8 per cent in the next five years, and prime property outside London forecast to grow 18.2 per cent.
“Coastal second home hotspots are likely to remain fairly price sensitive next year”, says Nick Maud, director of research at Savills, commenting on the prime property market beyond London.
“But elsewhere, prime regional housing markets are likely to benefit from some displaced demand as families look to strike a balance between house prices, commutability, and access to schooling.”