When the temperature starts to plummet in the Arctic winter, the 30-tonne grey whale heads for California – a 6,000-mile journey undertaken over three months. Meanwhile, the Arctic ground squirrel takes a different approach, entering a six-month period of hibernation. By contrast, walruses, whose hides account for roughly 20% of their body weight, remain active and adapt their behaviour to the shifting ice flows.

There is little doubt that climatic conditions for homeowners in prime central London have changed in recent months – largely in response to a colder, harsher tax environment.

Those homeowners have faced similar options to the creatures above: head for milder climes, enter a state of dormancy, or stay put and enjoy everything else the area has to offer. As you might expect, responses have been a combination of all three.

There is a growing body of evidence, supported by our own surveys, that some who have previously based themselves in the UK have changed their residency. The likes of Dubai, Milan, and Monaco have benefited from an influx of wealth at London’s expense.

Measures to bring the global assets of long-term resident non-domiciles (non-doms) within the ambit of UK inheritance tax have eaten away at prime central London’s appeal to a relatively footloose community of ultra-high-net-worth individuals.

Then, bulking up the stamp duty surcharge for those buying a second home or investment has eroded the buying power of another source of demand.

FEATURES OF A CHANGED ENVIRONMENT

These factors – combined with concerns about how the Chancellor will address the gap in public finances at the next Budget, now scheduled for 26 November – have contributed to a slower transaction market so far this year. This is reflected both in our assessment of £5m+ sales and in the accompanying data from TwentyCi on deals agreed for publicly marketed stock.

The second data source shows that, despite the relocation of some prime central London homeowners, there has not been a rush of new stock brought to the market since the first Budget of the new government. This is both a testament to London’s long-term appeal and recognition that tax environments can change, being ultimately judged on their revenue-raising power.

But still, the amount of unsold stock on the market has risen, leading to a disconnect between supply and demand. That, in turn, has put continued downward pressure on prices. At the end of June, prices were on average 3.7% below the previous year, and a much more meaningful 22.4% below their level before fiscal climate change set in, back in mid-2014.

For another group, the losses they have incurred in that period have encouraged them to wait things out. This group, in particular, will be hoping for a change in direction at the upcoming Budget.

Over the summer, it was widely reported that the Chancellor of the Exchequer was reviewing her decision to expose long-term UK resident non-doms to inheritance tax on their global assets.

While that may be a U-turn too many, it does suggest that calls from the left for a UK widespread wealth tax will, as reported in the broadsheets, ultimately go unheeded. All of the well-documented practical issues with such a policy point towards the burden of increased taxation falling elsewhere.

Cue a raft of options being floated in the media, ranging from removing private residence relief from capital gains tax on high-value homes, to replacing stamp duty with annual charges that are linked directly to the value of the properties worth over £500,000.

Until there is certainty about how the government intends to close the gap in public finances, it is unlikely that we will see demand significantly increase. Those who have been seeking to take advantage of the current value on offer, or are looking for a safe haven in an age of geopolitical uncertainty, are likely to need more confidence in the fiscal environment in which they are buying into before they press the button.

While conditions in prime central London have become less hospitable, there have also been those who have adapted to changes in the ecosystem – prompting a shift in the make-up of buyers and sellers, with some occupational demand being pushed into the prime rental sector.

Purchaser profiles, both domestic and international, have transitioned to younger buyers. They are more likely to have built wealth in emerging sectors, such as tech, and are less worried about distant tax events. To put that into context, our sales deal book data shows that in the ten years to the end of 2024, 34% of buyers in central London were under the age of 40. In the first six months of this year, that had risen to 46%.

We have also seen domestic buyers who are looking to acquire their main residence take up a bigger share of the market, rising from 54% to 64% of UK demand in central London. They are recognising the relative value on offer and waking up to the buying opportunity available. At the same time, investors have become thinner on the ground, going from 13% to 9% of total demand.

The profile of those parting with prime central London property has changed too, with a higher proportion of second-home owners and investors selling, particularly among non-UK nationals.

A GRADUAL THAW

These changes provide a useful reminder that markets evolve as conditions change – and that prime central London is no exception.

The extent of this evolution will become much clearer over the coming months, as more details about the UK tax environment for ultra-high-net-worth individuals emerge.

Certainly, with the newspapers awash with warnings of the risk of capital flight, the realisation is dawning that retaining and continuing to attract wealth to the UK is key to its economic fortunes.

Providing this is recognised at the next Budget, and people’s fears are averted and a balanced approach is taken to further tax reform, we can expect a gradual recovery in the prime central London market once any further changes have been digested. In the meantime, there is a strong buying opportunity available to certain buyers.

Those considering whether to take advantage of this would do well to note that, as the Arctic temperature improves, the grey whale returns to its summer feeding grounds and the Arctic squirrel eventually comes out of hibernation.

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For more information, please contact your nearest local office or arrange a market appraisal with one of our local experts.

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