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Interest Rate and Labour Tax worries hit prime property market

Price growth in high-value prime areas has been put on hold given uncertainty surrounding the General Election, according to the latest analysis from Savills.

“Despite the short odds on a change in government and continued market activity, the general election has resulted in a degree of caution in the market, with some prime buyers opting to wait-and-see how the events of the next couple of weeks unfold before firming up plans,” comments Frances McDonald, director of research at Savills.

“However, the shorter than expected run in to the general election means there is more opportunity for buyer demand to gain traction over the autumn, once most of the uncertainty is behind us.”


Prices in prime central London have fallen slightly, by 0.4% on the quarter, and 0.9% on the year, representing an average fall of just £20,000 in value for a property worth £5m over the past three months.

“The impact of non-doms tax changes is likely to be most keenly felt in prime central London, where those affected are currently weighing up their options. But it’s important to remember that most prime central London buyers do not have a non-dom status. Demand from domestic and other international purchasers continues to be resilient, especially given the value on offer in a historical context, as well as growing stability in the mortgage market, with some lenders starting to lower rates in anticipation of a base rate cut.”

“Furthermore, there is little evidence to suggest that we will see a flurry of stock coming onto the market, as many of those affected by non-doms changes are likely to retain their base in the capital. However, it is likely this will act as a drag on demand and the pace of recovery, with an expectation that value will ebb and flow as proposals work their way into law” continues McDonald.

Across other more domestic prime markets in London, values remained steady with prices essentially flat both on the year (down 0.1%) and the quarter (up 0.1%). Values here have been underpinned largely by strong needs-based demand for family homes, a relatively stable mortgage market and limited available stock, particularly in locations such as Fulham, Putney and Victoria Park, with a several big-ticket transactions taking place over the last couple of weeks.

Beyond London, prices fell marginally on the quarter by 0.4%, taking annual falls in value to a drop of 2.7%. These are the markets which saw the strongest growth during the mini housing market boom of 2020 and 2021.

Here, too, some buyers have put plans on hold as they await an interest rate cut announcement and, in some cases, clarity around future school fees. “However, despite a shallower pool of demand, there have been enough committed buyers to keep the market moving,” says MacDonald.

Across all regions, urban markets are outperforming surrounding more rural areas, as pre-pandemic trends continue to unwind, and buyers prioritise amenities and connectivity. Prime values in cities (down 1.7% year on year) and towns (down 2.2%) falling less significantly than villages (which have seen a drop of 2.9%) and other rural locations (down 3.2%).

“Labour’s plans to introduce VAT on private school fees could see more demand filtering into the state and grammar school systems which may, in turn, increase the house price premiums we already know are evident around high performing state schools.”


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