The overwhelming reaction to the Mansion Tax announcement in last week’s Budget was relief.
It’s a new tax, and we know which direction they eventually go in, but the High Value Council Tax Surcharge is less punitive than feared. Full details and our Budget reaction can be found here.
If it wasn’t so close to Christmas, the prime London market would be going on a full-blown relief rally.
The certainty means that deals previously on hold are now taking place, although there aren’t many new transactions starting three weeks before the festive break.
There is probably a lesson in there somewhere for the Chancellor about creating the right conditions for growth. I discussed the wider economic impact of the Budget on last week’s episode of Housing Unpacked with Michael Brown, a research analyst from financial broker Pepperstone.
The impact of the Budget on house prices in recent months has certainly been clear.
Nationwide and Halifax both reported that UK annual growth approached zero last month, hindered by the endless rumours about which taxes would rise.
Average prices in prime central London, a market at the sharp end of the speculation, fell 4.3% over the same 12 months. It was the widest decline since February 2021, a time just before prices began to rise during the pandemic-era stamp duty holiday.
Domestic buyers
In prime outer London, the annual change was negative for the second successive month, falling to -0.3%, the lowest figure since July 2024, the month of the general election.
The outer London market is more driven by needs-based domestic buyers but has its fair share of properties that will qualify for the new council tax levy. Richmond, for example, has just over 7% of the 150,000 properties worth more than £2 million in England and Wales, Knight Frank calculations show.
Hammersmith & Fulham has 4.5%, while Merton has 3.5% and Wandsworth has 2.9%. Meanwhile, Camden has 6.9% and Islington has 2.2%. For comparison, Kensington & Chelsea has 18.5% and Westminster has 12.4%.
While some buyers waited for the Budget before acting, others accelerated their plans before 26 November, as we explored here.
The combination of the two meant sales volumes rose last month across London. The number of exchanges was 5% higher than the five-year average in PCL and POL. For properties above £5 million, the increase was a more notable, and perhaps understandable, 21%.
Now there is economic clarity, the biggest near-term risk facing the market is political. It seems to be a working assumption for a growing number of people that the Chancellor and Prime Minister will lose their jobs after the local elections next spring.
Rejection at the ballot box in 2026 could be interpreted by some inside the Labour Party that voters want the government to accelerate its tax and spend plans. It’s an assumption that may well be rejected at the ballot box itself, but only in 2029 at the general election.
