UK luxury homes market slumps after Brexit vote

London’s luxury home market has collapsed over the past six months as tax changes and uncertainty around Brexit have deterred buyers from both the UK and overseas, a property investment firm has claimed.

The number of new-build properties sold for more than £5m in the six months to the end of October was down 83% on the same period of 2015, according to LCP. The number of transactions fell from 52 to just nine.

Large falls were also recorded across England and Wales on other high-end properties, with sales of homes costing more than £10m down by 75%, from 61 to 15. Transactions for all UK properties costing between £5m and £10m were down by 51%, from 201 to just 99.

LCP said the figures, which are taken from Land Registry data, showed that the market had been hit hard by a new higher rate of stamp duty on second homes which came into effect at the start of April. The higher rate, which is three percentage points above the normal cost, added £150,000 to the upfront cost of buying a £5m property.

Naomi Heaton, LCP’s chief executive, said that the introduction of a higher tax on second homes “against a backdrop of uncertainty around Brexit and the direction of travel of the UK’s economy … has been one step too far for both domestic and international buyers”.

Developers have reported a slowdown in sales at the top end of the market, with Berkeley Homes recently reporting a 20% fall in demand as a result of the new stamp duty rate and concerns over the UK’s decision to leave the EU.

Heaton said that the slump in demand for luxury new-builds was likely to have an impact further down the market. “With these top-end sales typically offsetting the cost of providing more modest housing and essential cashflow to reinvest into new development, the chancellor may well struggle to deliver upon his new affordable housing targets as developers begin to face losses,” she said.

LCP’s analysis, which will not include all sales completed over the summer because some buyers do not register their deals immediately, found a downturn in all £1m-plus price bands. Between £1m and £2m sales were down by a third year on year, while between £2m and £5m they fell by 36%.

The firm said the reduction in sales would have a significant impact on the government’s stamp duty tax take, and estimated that receipts would be down by £500m over the last six months. It said changes that bring properties owned by non-doms into inheritance tax could take that figure to £1bn by the end of the tax year. Figures for the 2015/16 tax year showed stamp duty receipts for properties costing between £1.5m and £2m were up by 26% on the previous year’s figure.

Heaton said: “Political posturing that has made foreign investment the scapegoat for our UK housing crisis is having an entirely negative impact. A contraction of the luxury market will not miraculously provide new homes for the domestic market. It will simply reduce tax take and damage the wider economy as affluent investors spend their money elsewhere.”

On Monday, property firm Knight Frank said prices in prime London postcodes had fallen by 4.8% in the year to November, and were set to end the year 6% down. In Chelsea, prices have dropped by 12.6% over the past year, it said, while around Hyde Park values are down by 11.2%. It forecast that across the market prices will remain flat in 2017.