Domestic markets remain buoyant amid pre-Budget uncertainty
Frances McDonald, Director, Residential Research
The run-up to November’s Budget, and the accompanying speculation around potential property tax changes, has led to uncertainty and caution at the top end of the housing market.
Our recent survey of Savills buyers and sellers revealed that 41% of London respondents had become less committed to buying in the next six months, directly as a result of tax rumours. In contrast, only 11% had become more committed to moving over this period.
There is a feeling that buyers and sellers have been left to try and understand what the different rumours might mean for them and their finances, without knowing which measures will actually be implemented.
This means the market has become increasingly reliant on needs-based, domestic buyers and those who have simply decided to continue as planned.
Despite this, top-end activity levels were stronger than expected throughout September, which is usually the start of the busy autumn period. This suggests that the residual impact of marginally improved interest rates may be helping to temper some of the caution surrounding the Budget.
Across London, there were 10% fewer net agreed sales above £1 million compared to September last year, according to data from TwentyCi. At the same time, there were 8% more price changes to marketed stock, though this is lower than the levels seen earlier in the year when price changes were almost one-and-a-half times higher than in 2024.
A 4% rise in new instructions also indicates some renewed confidence from sellers and for motivated buyers, there is opportunity in this less competitive, but still price-sensitive, market.
Central London markets continue to contend with global uncertainty and earlier policy changes, which have now been compounded by fresh speculation over further taxation.
Prices here continued to decline over the summer, falling by 1.8% – the sharpest quarterly drop since late 2016, which was shaped by the EU referendum, a change in prime minister, and the introduction of a new stamp duty surcharge.
The most discretionary market, above £10 million, has seen more significant price falls. The pool of buyers typically interested in this price point had already shrunk after the end of the non-doms regime, and others remain hesitant to act ahead of the Budget.
But, as overall central London prices are now 24% below their previous 2014 peak, there does remain a pocket of demand from those who recognise the capital’s strong fundamentals and are looking to capitalise on the historic value available.
Across outer prime London, price falls have been contained to -0.7% during the past three months and by -0.8% over the past year. Demand has primarily been concentrated in domestic markets, particularly those in South West London, where needs-based moves, driven by customary and necessary life changes, continue to take place.
Similarly, house prices are holding up better than flats, with values remaining broadly flat on an annual basis.
We are likely to see continued caution in the run-up to November’s Budget as both buyers and sellers wait to see what impact any changes will have on their finances. The prospect of any further rate cuts this year has also receded, given higher-than-expected inflation and muted economic growth.
The prime markets usually tend to lead a recovery, but the opposite is true in the current environment. Furthermore, it will take some time for any tax changes to be fully absorbed by the market before a delayed recovery takes hold.
Over the longer term, the market in outer prime London will still be buoyed by domestic moves with those looking to upsize and relocate as their needs change, still forming a large part of demand.
In central London, there remains an attractive prospect for those with a long-term view and who recognise the fundamentals of the capital.
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