Concerns are mounting that the downturn in London’s luxury property sector could eventually impact housing markets across the rest of the UK. A key trigger has been recent changes to stamp duty, which have increased costs for homebuyers and pushed many sellers to lower their asking prices, particularly in the capital.
The reforms to stamp duty, introduced in April, altered the thresholds at which the tax applies. As a result, a much larger share of property buyers now face this tax, making the process of buying a home more expensive than before. This shift is especially noticeable in high-value areas like central London, where the added costs are significant.
Buyers must now think more carefully about the financial implications of purchasing a property, with many opting to negotiate lower prices to make up for the extra cost. For those selling homes, particularly at the higher end of the market, this has meant accepting reduced offers or seeing properties sit unsold for longer periods.
Data from property portal Zoopla highlights the growing impact. Before April’s changes, only 49% of homebuyers had to pay stamp duty. That figure has now jumped to 83%, suggesting that the majority of buyers are being caught by the new tax rules. It’s a steep increase that has had clear consequences for buyer behaviour.
In many cases, the added cost has prompted buyers to drive harder bargains. Sellers are under pressure to drop their prices to keep deals moving, and this is especially true in London where property values are already high. For those looking to sell quickly, offering a discount has become a common tactic.
Currently, around 951,000 people are liable for stamp duty. While that number is still below the recent high of 1.2 million, it’s expected to rise again as more buyers are pulled into the system. The broader effect is that the government is collecting more in stamp duty than before, and much of it is concentrated in London.
In fact, more than one-third of all stamp duty collected – amounting to around £4.5 billion – comes from property deals within London alone. This shows just how much the capital contributes to national property tax revenue and how sensitive the market is to changes in tax policy.
Buyers of average-priced homes in London are also feeling the pinch. For example, someone purchasing a property worth £532,449 now faces up to £2,500 more in stamp duty than they would have before April. This added expense can be a real obstacle, especially for those moving up the property ladder.
But it’s in the prime areas of London where the impact is most dramatic. In districts like Belgravia and Mayfair, properties are being listed with price cuts of up to 30% in order to attract interest from international buyers who are increasingly reluctant to buy in the face of such high taxes.
The stamp duty on a £20 million mansion in central London is now around £2.3 million for someone based in the UK. For non-residents buying a second home in the capital, the bill could reach an eye-watering £3.7 million. While this used to be seen as the cost of entering the London lifestyle, the sentiment appears to be shifting.
Even among the world’s wealthiest individuals, such figures are raising eyebrows. Many of the super-rich who once saw London as a must-have address are now rethinking their plans. Instead of buying, an increasing number are choosing to rent luxury homes, avoiding the steep tax bills entirely.
Neil Hudson of the property consultancy Built Place explained that the annual rent for a £20 million London home is around £570,000. For a UK buyer, this would mean they could afford nearly four years of rent for the same amount they’d pay in stamp duty alone. It’s a calculation that’s hard to ignore.
This new trend of renting over buying has become more widespread among overseas investors and ultra-high-net-worth individuals. The rental option offers flexibility, avoids tax, and allows them to continue enjoying London’s amenities without committing to a large purchase under the new rules.
There is now growing concern that the slump in London’s top-end market could spill over into other parts of the country. If London – which has long been seen as the barometer for house price trends – continues to weaken, it may lead to a slowdown in other regions as well.
Richard Donnell, head of research at Zoopla, noted that London was at the forefront of the property boom in 2015. Since then, prices have largely flatlined, and without strong momentum from the capital, it’s possible the broader UK housing market could begin to stall too.
Download NOW
4 Simple Steps To Becoming Wealthy Through Property