Knight Frank warns prime London faces summer of speculation ahead of autumn Budget
Knight Frank said prime London property markets face another period of speculation ahead of the autumn Budget, as political uncertainty, tax debate and a tougher lending environment weigh on activity.
Prime London property markets face another summer of speculation ahead of the autumn Budget, according to Tom Bill, head of UK residential research at Knight Frank.
In his latest UK Residential Outlook, Bill said Andy Burnham’s first speech as Prime Minister-in-waiting was “uplifting and ambitious”, but remained light on detail.
He said potential policies affecting the property market could include aligning Capital Gains Tax and income tax, replacing stamp duty and council tax with a land value tax, and the largest programme of social housebuilding since the Second World War.
Bill said treating the ideas as anything more than a wish list would be premature, particularly given Labour’s existing manifesto pledge to build 1.5m homes.
He said fiscal trade-offs were likely once Burnham and a possible Miliband Government had seen the books, with leaks and newspaper headlines then likely to become more important indicators of policy direction.
Knight Frank said the prime London property market could see a repeat of last year’s pre-Budget speculation, with the Government potentially looking at smaller wealth-based tax rises if broader spending cuts or tax increases remain politically difficult.
A spokesperson for Foreign Investors for Britain said: “The people who create businesses, back innovation, employ staff and support philanthropy are not an enemy class.
“If Britain sends the message that success will simply be taxed, vilified and raided, many of those people will not stay to fund the next phase of national renewal.”
Alex Webster, head of lending at private bank Coutts, said wealthy individuals had become somewhat hardened by recent volatility, with international clients accounting for 28% of the bank’s loan book.
Webster said: “Our clients are almost expecting volatility to be the new normal. It’s something they are going to be watching very closely but they will carry on thinking about the long-term picture.”
Stuart Bailey, head of prime central London sales at Knight Frank, said: “Last summer’s speculation ahead of the autumn Budget caused hesitancy in the market, and as a consequence, less stamp duty for the Government coffers.
“The reality was less severe than the impact of the speculation, which means buyers and sellers this summer have become more immune to the political noise and posturing, and are getting on with life.”
Knight Frank data showed the annual price decline in prime central London was 3.6% in June for the second consecutive month.
Transactions in prime central London were 14% lower in the year to June compared with the previous 12 months, although the number of offers made was down by 4% over the same period.
Prime outer London continued to prove more resilient. Average prices fell by 0.4% in the year to June, leaving values at the same level as June 2022. Transactions were down 7% over the 12-month period, while offers made increased by 5%.
In the wider housing market, Knight Frank said the impact of the Middle East conflict and associated rise in mortgage rates had started to show. UK mortgage approvals fell by 14.8% to 56,205, which Bill said was the 10th largest monthly decline since records began in 1993.
HMRC data also showed transaction numbers fell by 2% between April and May, highlighting the absence of a seasonal spring bounce.
Bill said the latest declines had more to do with the Middle East conflict than domestic political uncertainty, although he added that while energy prices were coming under control as both sides moved towards a ceasefire, another headwind was gathering strength.
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