Second home purchases in London have fallen sharply over the past year with transactions in the prime market down by more than half as higher taxes and policy uncertainty weigh on demand.
Research by Jefferies London shows that across the capital, second home purchases dropped by 42% in the 12 months to June, while in the prime market the decline was steeper at 51.4%. Overall transaction levels in London fell by 20.5% year on year.
The analysis, based on Land Registry sold price records, found that just 11.7% of all London transactions in the past year were second home or additional property purchases, compared with 15.9% in the previous 12 months.
In the prime market, the share dropped to 9.1%, down from 13.7% a year earlier.
TAXING TIMES
The shift follows a series of tax measures targeting additional property ownership. Last October the surcharge on Stamp Duty Land Tax for second homes rose from 3% to 5%, significantly increasing upfront costs.
From April this year, councils were also granted powers to levy a council tax premium on second homes, raising ongoing costs for owners.
Meanwhile, the government’s proposed plan to abolish stamp duty altogether and replace it with an annual homeowners’ tax has added further uncertainty to the outlook.
At postcode level, the impact has been acute in some of London’s most expensive areas.
SHARP FALLS
Jefferies reports that six prime postcodes recorded zero second home purchases in the past year compared with the previous 12 months, including parts of Mayfair, Soho, Leicester Square and Charing Cross.
Other districts have seen sharp falls rather than complete withdrawals. In Kings Cross, additional property transactions dropped by 94.6% year on year, while New Oxford Street and parts of Marylebone saw declines of over 90%. In Vauxhall and Nine Elms, the fall was nearly 87%.
Analysts say the combination of higher upfront and annual charges, coupled with the risk of further structural changes to property taxation, is eroding the appeal of London’s prime market for second home buyers and investors.
DAMPENED APPETITE
Damien Jefferies (main picture, inset), Founder of Jefferies London, says: “The prime London market has long attracted international and domestic investors alike, but successive tax hikes on second homes have significantly dampened appetite and this has resulted in a contraction where sales volumes are concerned.
“Our research shows that second home purchases are down significantly across the London market and, where the prime London market is concerned, they’re now running at little more than half the level seen just a year ago.”
NEED TO TREAD CAREFULLY
And he adds: “It remains to be seen where we go from here. On the one hand, the potential overhaul of stamp duty could act as a catalyst and drive buyer activity, however, introducing a new annual property tax targeting high-end homebuyers could risk deterring even more buyers.
“Policymakers must tread carefully if they want to ensure that London remains an attractive and competitive destination for global investment.”
